SNB Ends Euro-Swiss Franc Peg, Creates Market Turmoil
January 15th, 2015
January 15th, 2015

How Long Ago?
10 years, 2 months ago
Location
Switzerland
Category
Economics & Industry
People
- Thomas Jordan
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SNB Ends Euro-Swiss Franc Peg, Creates Market Turmoil
The Swiss National Bank (SNB) unexpectedly removed the cap on the Swiss franc's value against the euro, a measure that had been in place since 2011 to stabilize the currency. This sudden decision led to significant volatility in financial markets worldwide. The move resulted in a dramatic appreciation of the franc, causing chaos among forex traders and impacting various financial instruments, including derivatives and stocks. The central bank aimed to curtail the rising pressure on the Swiss franc as the eurozone faced economic challenges.
SNB scrapped the euro-franc cap dramatically
The franc surged 30% against the euro instantly
Market chaos sparked widespread financial losses
Highlight of central bank independence and risks
What Happened?
For over three years, the Swiss National Bank had maintained a cap on the Swiss franc's value against the euro, set at 1.20 francs per euro. This policy was introduced in response to the European debt crisis to prevent the Swiss currency from becoming too strong and harming the competitive position of Swiss exporters. However, as the eurozone's economic situation remained precarious, the SNB found itself under increasing pressure to defend the cap, leading to a significant buildup of foreign currency reserves.
On January 15, 2015, the SNB shocked the markets by announcing the abandonment of this cap. The decision was unexpected as it had been considered a cornerstone of the SNB's policy framework for several years. Consequently, the Swiss franc surged against the euro by as much as 30% within minutes, causing severe disruptions in forex markets and prompting many brokers to incur large losses. The sudden appreciation led to a wave of panic selling across European markets, highlighting the interconnectedness of global financial systems.
In the days following the announcement, a significant re-evaluation of currency positions took place, impacting not only individual traders and financial institutions but also broader economic indicators. The move by the SNB was interpreted as a signal of its dissatisfaction with the monetary policies of the European Central Bank (ECB), as the latter prepared for its quantitative easing program. Ultimately, the decision illustrated the volatility inherent in monetary policy and its far-reaching implications for investors and economies worldwide.
Why Does it Matter?
The decision by the Swiss National Bank to abandon the peg has had lasting implications for monetary policy and global finance. It demonstrated how central bank actions can resonate across borders and impact multiple economies. Forex markets experienced unprecedented volatility, leading to a more significant scrutiny of currency interventions by central banks. This move also sparked discussions on the stability of monetary regimes and the loyalty of investors towards stable currencies in times of uncertainty.
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