Another form of QE from Switzerland

The Swiss National Bank (SNB) has brought a new interpretation of quantitative easing. We have all heard of QE1 and QE2 (maybe QE3 is arond the corner) where US Fed Chairman Ben Bernanke has been printing money to try and stimulate demand in the US economy, but in Switzerland it has taken on a new meaning. Officials see the Swiss Franc as being massively overvalued and this threatens the development of the economy.

Nervous investors have sought safety in the traditional safe haven asset. Since the start of the year, the Swiss franc has surged nearly 20% against the euro due to growing global economic uncertainty. Just last month, the franc strengthened enough to trade close to parity against the euro. Swiss exporters have blamed the overvalued exchange rate for poor performances – companies like Swatch and Clariant have recorded significant reductions on export revenues – Swatch has warned that the franc’s appreciation could cost it Sfr1bn (NZ$1460m) this year. The SNB announced a ceiling against the euro of SFr1.20 and said it would interevene in foreign currency markets by buying foreign reserves with Swiss Francs in order to depreciate their currency. Remember that it is a lot easier for a country to reduce the value of their currency as they can print as much of it as they wish in order to intervene – this is another form of QE. This does have it’s risks in that the economy may experience inflationary pressures with the increase in supply of Swiss Francs.

Leave a Reply

Your email address will not be published. Required fields are marked *