Saturday, September 22, 2012

Swiss currency manipulators - no it is the EU who controls FX rates

The EURCHF exchange rate has been stuck at the 1.20 level for months but has now moved above the target in the last few weeks. The EURCHF hit an all-time high in August of last year which caused the Swiss central bank to declare a peg for the franc at 1.20 and would use unlimited amount of funds to get the market to this level. It has backed its word with a doubling of foreign exchange reserves to 400 billion chf. Deflation has started to decline but there is little to cause a change in policy except a change in the policies within the rest of Europe.

Is the swiss central bank a currency manipulator? Clearly, the answer is yes, but the control of the exchange rate is really in the hands of the Eu finance ministers and the ECB. If they provide better policies, there will be less desire for capital flight to Switzerland at negative interest rates. 

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