The Swiss National Bank usually ticks away as quietly as one of its nation’s more expensive timepieces, but when the cuckoo does occasionally burst out of the clock, all hell breaks loose. After a policy was introduced in September 2011 to depress the Swiss franc against the euro (as traumatised investors continued to pour money into safe-haven Switzerland), governor Philipp Hildebrand resigned when it came to light that his wife Kashya had sold a huge bundle of francs ahead of her husband’s market intervention, then bought them back at a handsome profit.
Now, weeks after Hildebrand’s successor Thomas Jordan called the informal fixing of the franc at €1.20 ‘absolutely central’ to his bank’s strategy, the peg has been removed — causing the Swiss currency to soar to €0.85 before settling around one to one. Some brokers, hedge funds and speculators (Mrs Hildebrand has not revealed her position this time round) have taken caning losses, while Swiss stocks have plunged in anticipation of weaker exports and reduced growth. Meanwhile, players who profited from the last week’s action have reportedly moved on to attack the peg which holds the Danish krone within a very narrow range against the euro, forcing Denmark’s central bank to cut its deposit rate to a record low.
Free-marketeers have been saying it was a mistake for the Swiss to introduce a peg in the first place, bottling up future turbulence, especially as it relied on the potentially inflationary device of creating new francs with which to buy billions of euros. One reason for ceasing to do this now, we’re told, is that when European Central Bank chief Mario Draghi launches his own money-printing quantitative easing programme — as is widely but nervously expected this week — downward pressure on the euro would require even more Swiss money-printing to hold the peg.
Those who regard QE as irresponsible or dishonest in principle would be horrified at the prospect of neighbouring central bankers showering each other with notes on which the ink is barely dry, while those who regard the euro as a doomed exercise in political fantasy regard the Swiss episode as a minor sideshow compared with the cataclysm that may await the single currency after the Greek election.
But a more pragmatic voice is that of Hong Kong financial secretary John Tsang, whose advice is that if your currency happens to be pegged — as Hong Kong’s dollar has been, at 7.80
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