Swiss National Bank Sets Minimum Exchange Rate
Friday, September 09, 2011

Determined to protect the Swiss economy and to avoid the risk of a deflationary development arising from the ‘massive overvaluation of the Swiss franc’, the Swiss National Bank (SNB) has set the minimum exchange rate at CHF1.20 per euro.

Defending its decision, the SNB states in its release that:

“The Swiss National Bank 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 CHF1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”

It adds: “Even at a rate of CHF1.20 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.”

Commenting on the bank’s decision, Philipp Hildebrand, chairman of the SNB governing board remarked:

“The Swiss economy has staged a remarkable recovery from the great recession. It has benefited from tremendous efforts by thousands of companies, employees, and decisive policy measures by the authorities.”

“International developments, however, have now caused the Swiss franc to appreciate a great deal within a short period of time. This has resulted in a massive overvaluation of our national currency. Switzerland is a small and very open economy. Every second franc is earned abroad. A massive overvaluation carries the risk of a recession as well as deflationary developments.”

Hildebrand concludes: “With today’s decision, the SNB sets foot on a challenging journey. We have to accept the fact that the costs associated with it might be very high. At the same time, doing nothing would almost certainly inflict tremendous long-term damage on our economy. With today’s measure, the Swiss National Bank is acting in the interest of the country as a whole.”