SNB Not Being Frank on Franc Peg to Euro
Those comments from the Swiss National Bank are merely a sophisticated form of verbal currency intervention(beats the usual empty threats of vowing to intervene) designed to catch traders wrong-footed with an original idea-- yet far from practical. Why would a neutral economic powerhouse link its currency to an overstretched single currency, whose central bank is rushing to . . .
central bank is rushing to . . . buy at least EUR 100 bln in additional dubious sovereign debt and whose nations lack unified fiscal policies? The advantages of a more competitive currency are always desired by a thriving exports industry such as Switzerland-- but NOT at the expense of aligning its monetary policy (that's what SNB will have to do if it were to peg CHF to EUR) to an external central bank that is barely exercising control over disparate set of economies. The SNB has succeeded in buying itself some time by triggering a 600-pt decline in the currency, just as the Fed has bought itself some time by making a reference to the "2013" definition of extended period before it assesses when will it start QE3. All central banks do it--buying time--and that's exactly what the desperate SNB did when all threats have failed.
Thus, instead of a peg, the SNB may well consider capital controls to limit foreign inflows into the country, as was done in the 1970s, and as is currently being done by hot-money emerging markets of Latin America.
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