Verbatim text of the press release by the Swiss National Bank (SNB). Press release here.
Swiss National Bank sets minimum exchange rate at CHF 1.20 per euro
The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development.
The Swiss National Bank (SNB) is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below the minimum rate of CHF 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.
Even at a rate of CHF 1.20 per euro, the Swiss franc is still high and should continue to weaken over time. If the economic outlook and deflationary risks so require, the SNB will take further measures.
Just this morning, I read a brief at VoxEU by Richard Baldwin which said that the solution to the Eurozone debt problem was to authorise unlimited, open-ended purchase of Eurozone sovereign paper by the European Central Bank while governments credibly pursue fiscal policies. Obviously, that would entail a much weaker Euro.
How does that square with the Swiss National Bank balking at Euro weakness against the Swiss franc? Ceteris paribus, this move of the SNB does not help the Eurozone.
Further, the market’s reaction is unthinking. The withdrawal of one safe-haven alternative means the value of other safe-havens must rise. Therefore, the knee-jerk selling Gold is irrational.
Next to fall will be Japan. Then, there is open currency war. Welcome to the brave new world of 2012.