The marriage between the Swiss franc and the euro is officially over, but the fallout from their separation is still to be determined. CCTV America’s Bianca Davie looked at the arguments for and against the split.
Swiss National Bank announces shakeup to end currency peg to the euroThe marriage between the Swiss franc and the euro is officially over, but the fallout from their separation is still to be determined. CCTV America's Bianca Davie looked at the arguments for and against the split.
Switzerland is known for its delicious chocolates, snowcapped mountains, and sparkling lakes, but the quiet, picturesque country rocked the financial world Thursday with a dramatic change to its monetary policy. The Swiss central bank dropped a three-year-old cap on the Swiss franc that was pegged to the value of the euro, because bank officials said it was unsustainable.
“The euro distinctly lost value against the U.S. dollar which is why the Swiss franc also lost value against the U.S. dollar. In light of this, the Swiss National Bank decided that it doesn’t make sense to carry on with a policy that is not sustainable and that can only be carried out by constantly intervening in the market,” Thomas Jordan, the chairman of Swiss National Bank said.
The Swiss Franc has been linked to the Eurozone’s shared currency since 2011 with an exchange rate of 1.20 francs per euro.
“The limit was introduced at a time of extreme overrating of the Swiss franc and massive uncertainty on financial markets. This extraordinary and temporary measure saved the Swiss economy from serious damage,” Jordan said.
The bank’s decision to break up with the euro sent the franc, also known as the Swissie, soaring. But currency traders weren’t the only ones cashing in. There was a surge in business at exchange windows throughout Switzerland.
While the split means a higher valued Swiss franc, some companies are worried about long-term consequences. They said the exchange rate decision spells trouble for an economy that depends heavily on exports and they worry that the new policy will ultimately make them less competitive in international markets.
Investors will now wait for the first round of 2015 earnings reports to find out if a stronger Swiss franc will make their high-end ski resorts and luxury timepieces too expensive for customers outside of its borders to enjoy.