Swiss National Bank discontinues minimum exchange rate

Posted on 15/01/2015 · Posted in News

The Swiss National Bank (SNB), which is the central bank of Switzerland, is today discontinuing the minimum exchange rate of 1.20 Swiss Francs to 1 Euro. The bank says that minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets. This exceptional and temporary measure protected the Swiss economy from serious harm. While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced. The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro, introduced in September 2011, is no longer justified.

Following the announcement the Swiss Franc exchange rate soared in value against the Euro reaching 0.81 Euros to the Swiss Franc, but fell later in the day to virtual parity with the Euro.

Chair of the committee Dr. K. Alexander says that will hit hundreds of thousands of borrowers across Europe, who will now find that their debt in terms of their own currency has massively increased. In many cases the banks have not even obtained swiss francs, but are simply using a formula to increase the amount the bank customer has to pay.