SNB abolishes EUR/CHF peg

The decision by the Swiss National Bank (SNB) to abolish the Swiss franc peg to the euro at 1.20 can only have been taken to get out of the way of the impact of ECB QE in a week’s time. In the view of the SNB, the advent of ECB QE would have necessitated unsustainable levels of forex intervention by the central bank, bloating the balance sheet beyond what it could manage. This is a major deflationary shock to an economy already in deflation. The monetary policy to contain the damage cannot repeat the intervention and Swiss franc printing that maintained the peg. Highly negative interest rates will have to be the tool for at least as long as the ECB is printing money.

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