Swiss consider euro peg to weaken franc
Published 12/08/2011 | 05:00
THE Swiss Central Bank (SNB) is considering linking its Swiss franc to the euro in an effort to weaken the currency and boost exports. The franc has surged as a result of investors buying francs as a "safe haven" to ride out the crisis.
The rising franc is hurting Swiss exporters and worrying policy makers. SNB vice-president Thomas Jordan said yesterday a temporary "peg" to tie the franc to the euro is one options available to stem the currency's record-breaking rally.
"Any temporary measures to influence the exchange rate are permissible under our mandate as long as these are consistent with long-term price stability," Jordan said in an interview with Tages-Anzeiger yesterday, when asked about a general currency peg. Swiss National Bank spokesman Walter Meier confirmed the remarks. The franc weakened as much as 2.5pc.
The comments highlight the scale of the crisis engulfing the Swiss economy as policy makers seek measures to fight off investors piling into the franc.
While Swiss president Philipp Hildebrand has signalled the central bank is unwilling to give up its sovereignty, some economists have said the franc's surge toward euro parity is adding pressure on the SNB to consider a peg for the first time since the Bretton Woods currency system was abandoned in 1973.
"Relief on the franc is not expected by these comments," said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt. "The market will probably only react to actions."
The franc has gained 31pc versus the euro over the past year, reflecting investor concern that the euro region's fiscal crisis may continue to worsen.
With exports accounting for about half of gross domestic product, the Swiss economy is vulnerable to an appreciating franc. Food giant Nestle said this week that the franc's strength cut 14pc off its first-half sales growth.
Gold, also seen as a safe haven in volatile markets, fell yesterday as stock markets staged a recovery. Gold hit a high of $1,813.79 an ounce on Wednesday, but was down 1.8pc yesterday. Oil prices also fell.