Swiss currency conundrum after scrapping cap on franc
The central bank, led by Thomas Jordan, is generally well regarded in Switzerland, with a survey of company executives this month giving it better marks than the government.
The surprise policy shift on Thursday in Zurich, which caused the franc to shoot up against the euro and Swiss blue-chip stocks to slump, is regarded as unwelcome but necessary.
“Even if the knee-jerk reaction is to be upset, there are very good reasons and very justified reasons for the way the decision was taken,” said Henrique Schneider, head of political economy at Swiss Business Association, which represents 300,000 companies.
“If they’d used forward guidance, they’d have politicised the decision.”
Meanwhile, online news portal Inside Paradeplatz, which in the past has criticized the central bank, ran the headline ‘Tommy Rocks: SNB-Boss Frees Switzerland’.
While Switzerland is famous for banks like UBS Group and Credit Suisse Group and drug maker Roche Holding, small and medium-sized businesses, some of whom produce high-quality engineering products, are the backbone of the economy.
The euro area is Switzerland’s biggest trading partner, though in recent years the share of exports to Asia, where sales are often denominated in dollars, has risen. Watchmakers have particularly benefited from demand in China and Hong Kong.
“Mr Jordan and others also know why they did it, they must have a very specific reason to have done it,” Jean-Claude Biver, head of LVMH Moet Hennessy Louis Vuitton’s timepiece unit, said in an interview.
The SNB’s decision constitutes a particular challenge for the export and tourism sector, the government said yesterday, adding the cap was a “good, though always temporary instrument” and that it “trusts the central bank will guarantee price stability while taking economic developments into account.”
The country’s two biggest parties differed in their reaction, with the Social Democrats accusing the SNB of playing with fire. Neue Helvetische Bank chairman Thomas Matterand called the move courageous.
Bloomberg
