The Swiss National Bank took an unprecedented step to weaken the franc as
cap of 1.20 francs per euro back in September 6, 2011. The move followed
unsuccessful attempts to devaluate the currency. The announcement immediately met criticism from skeptics who did not believe that such a ceiling is sustainable. Was the intervention successful and, what is even more important, can the central bank to maintain the euro-peg in the future?
The franc slumped after the introduction of the peg, yet it immediately started to rise. The appreciation was very slow, but steady. By the April, the Swissie was trading near the ceiling. In fact, the currency broke through the 1.20 level on April 5. Thomas Jordan, the Chairman of the Governing Board of the Swiss National Bank, explained the event:
Despite SNB offers placed in the trading systems, a few isolated transactions occurred below CHF 1.20 per euro. However, at no time did the best available euro exchange
market fall below the minimum exchange rate of CHF 1.20. Thus, for a short time
what is known as a segmented market could be observed, in which transactions below the best price were concluded. This situation was remedied within very few seconds, however, by means of arbitrage.
Jordan explained that the central bank cannot control unregulated currency markets even
though the SNB can trade and influence them through its counterparties, which consist of more than 100 banks. The Swiss central bank remained committed to maintain the cap and, indeed, the franc was not able to breach the ceiling since then.
cap of 1.20 francs per euro back in September 6, 2011. The move followed
unsuccessful attempts to devaluate the currency. The announcement immediately met criticism from skeptics who did not believe that such a ceiling is sustainable. Was the intervention successful and, what is even more important, can the central bank to maintain the euro-peg in the future?
The franc slumped after the introduction of the peg, yet it immediately started to rise. The appreciation was very slow, but steady. By the April, the Swissie was trading near the ceiling. In fact, the currency broke through the 1.20 level on April 5. Thomas Jordan, the Chairman of the Governing Board of the Swiss National Bank, explained the event:
Despite SNB offers placed in the trading systems, a few isolated transactions occurred below CHF 1.20 per euro. However, at no time did the best available euro exchange
market fall below the minimum exchange rate of CHF 1.20. Thus, for a short time
what is known as a segmented market could be observed, in which transactions below the best price were concluded. This situation was remedied within very few seconds, however, by means of arbitrage.
Jordan explained that the central bank cannot control unregulated currency markets even
though the SNB can trade and influence them through its counterparties, which consist of more than 100 banks. The Swiss central bank remained committed to maintain the cap and, indeed, the franc was not able to breach the ceiling since then.
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