HUNTSVILLE, Ala. – It is clear we are living in a strange world when Switzerland, that most euro-skeptic of nations, has tied its fortunes to the success, in its current fragile form, of the euro zone common currency.
The Swiss National Bank on Tuesday shocked the markets when it announced it was imposing, unilaterally and with immediate effect, a cap on the value of its currency against the euro, seeking to shield its economic competitiveness from the massive flows seeking safe haven amid doubts over the euro zone.
This amounts to an extreme expression of confidence in the euro zone’s ability to sort itself out, because if it cannot this policy will fail expensively. It may even fail if the euro does not but if worries about it generate enough of a flow of cash that the SNB turns and flees.
“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 central bank said in a statement.
Saying it would “no longer tolerate” a value of its franc below 1.20 to the euro, the SNB said it “will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”