People who invested in some derivatives linked to the CHF, or made leveraged bets, got even bigger (potentially illimited) returns.
Swiss National Bank drops minimal euro rate
- Thread starter Grisu
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People who invested in some derivatives linked to the CHF, or made leveraged bets, got even bigger (potentially illimited) returns.
The Deutsche Mark had a stable exchange rate with the Swiss Franc for two decades. As of this morning it took this currency union 15 years to halve the value of the German currency against the Franc.
The Euro Franc exchange rate reached 0.85 earlier today. 0.85 used to be the DM franc exchange rate. I can't think of a better symbol for this disastrous currency union.
As for the Swiss National Bank, it was a huge policy mistake to peg the currency to the Euro and then kill the peg in a surprise move. It will cost the SNB a lot of credibility. Firstly, because their initial policy was wrong (what they now acknowleded), and secondly because they are becoming unpredictable. We'll have to see whether the Swiss financial sector and Swiss firms can get out of this relatively unscathed.
The Euro Franc exchange rate reached 0.85 earlier today. 0.85 used to be the DM franc exchange rate. I can't think of a better symbol for this disastrous currency union.
As for the Swiss National Bank, it was a huge policy mistake to peg the currency to the Euro and then kill the peg in a surprise move. It will cost the SNB a lot of credibility. Firstly, because their initial policy was wrong (what they now acknowleded), and secondly because they are becoming unpredictable. We'll have to see whether the Swiss financial sector and Swiss firms can get out of this relatively unscathed.
Well, having a more expensive currency by itself does not mean you are better off. Francs are used by very few people next to how many use euros, dollars etc, so they play a role mostly in deals between entities which do use francs for one reason or other (not just in Switzerland).
Not that the euro is not disastrous, but i doubt it is negative for Germany itself, given it is exporting mostly, and if its currency gets stronger this will at best level out in the new trade checks and balances.
(let alone that Germany has been making some nice billions of euros by pawnshop lending euros to other eu countries with an interest, (ie being lent money by the world bank at one rate and lending that same money to other eu countries at a higher rate) thanks for that nice help you greedy central-eastern europeans
Raskolnikov is needed here. ).
I don't deny that the Mark was much more stable towards the franc than the Euro, but you're exagerrating a bit there. It's not just the Euro that lost massivly towards the franc in the last 15 years. All the major currency weakened significantly towards the Franc.
Let's not forget that the DEM wasn't always so stable towards the franc as in the decade before the EUR. In the 70s it lost roughly 40% of its worth as well..
A surprise move was the only possible way to end this. What do you think would have happened if people had known about it in advance?
The move will certainly hurt swiss firms in the short term, especially those who are focused on export, but how much exactly it will hurt will be decided by what happens with the Euro in the months to come.
The Franc and the Yen (after 1990) were the only two currencies that were ever stronger than the DM (and the Yen was stronger as the Franc as well). Against every other currency, DM always appreciated, esp. against all those major currencies you mentioned. I don't see why this would have changed. Effectively, you guys get almost double the amount of DM when compared to just 15 years ago. Don't you think that's excessive?
In the 70's, yes. That episode scared the crap out of the Germans. It was the time when Chancellor Schmidt proclaimed he'd rather have 5 % inflation than 5 % unemployment. In the end, he got both (and even more of the latter). And that policy got discredited.
The decision was right. The point however is that the initial policy was wrong. But as a result of the initial decision, the SNB bought Euro assets worth hundreds of billions at inflated prices. That is a massive expansion. The SNB's balance sheet is worth 90 % of Swiss GDP. Switzerland with a population 1/10 the size of Germany's is the biggest holder of German government bonds. Their market value from a Swiss perspective is now down almost 20 %. I expect a further appreciation of the Frank over the course of the year.
The other aspect is that the SNB promised Swiss firms to defend an exchange rate of 1.20. I doubt many firms are prepared for a violent appreciation of the Frank. Jordan might as well have let the Frank appreciate further back in 2011. Chances are, the appreciation couldn't have been more violent than it's going to be now.
That is not much of a problem. Sure, you pay a little premium when you have to convert your currency first. That's a small price to pay for not having a loser currency.
Did it ever occur to you that the dominant role of export companies in the German economy is a result of Germany's Euro membership? Check how much the share of exports as percentage of GDP exploded over the past 15 years. It could not have happened without the Euro. But now, this massive distortion within the German economy is there and it's not going to go away with the Euro. Post-war Germany has never been the country of huge nominal wage rises when compared to almost every Western country. The Germans could increase their buying power through the constant appreciation of the DM. In that regard, Germany was/is similiar to Switzerland. Why do you think holidays in Greece, Italy, Spain etc. used to be cheap? It wasn't a matter of high nominal wage rises.
What do you expect? That Germany or anyone else loans you money at 0 % premium, fully knowing that you're going to default on it anyway? I'm sorry to say that but the fact that everyone in the Eurozone until 2009 could borrow at the same interest rate did not reflect the strength of the member economies. And as long it was the case, it was a huge market distortion to the very benefit of Greece, Spain et al. and to the disadvantage of Germany, Netherlands, Austria etc. who all saw their big advantage in capital costs vanish.(let alone that Germany has been making some nice billions of euros by pawnshop lending euros to other eu countries with an interest, (ie being lent money by the world bank at one rate and lending that same money to other eu countries at a higher rate) thanks for that nice help you greedy central-eastern europeans
SS-18 ICBM
Oscillator
Does this mean anything for a Canadian planning a trip to Geneva?
Canada, what I've seen of it, is a nice country to visit and travel in. But the distances are long between the places you want to see.
What i would expect is that if one is making money out of this lending, they should at least shut up about how helpful they are, cause as usual they are in it to gain more euros for their self
Not to mention what would happen if the eu actually dissolved, and we return to some tariff economy in the former eurozone, cause then export countries will see a nice -shall we say almost Weimaric?
- change to their situation.
innonimatu
the resident Cassandra
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Impossible. People would just withdraw their money and hold it in cash.
Cant we put an end to the euro already, if people north and south agree it was a bad idea?
There actually is a negative interest rate, but it's applied to banks, not individuals. The Swiss Central Bank charges banks a small fee to hold their deposits, so it's a negative interest rate indeed.
Edit: in essence nearly all Cental Banks of the developed world are paying a negative interest rate on deposits, only it is masked by inflation. Even in the US, when you lend money to the government they will pay you back less than inflation (at present, and for most instruments), so in essence you're paying them to safekeep your money.
Edit: in essence nearly all Cental Banks of the developed world are paying a negative interest rate on deposits, only it is masked by inflation. Even in the US, when you lend money to the government they will pay you back less than inflation (at present, and for most instruments), so in essence you're paying them to safekeep your money.
Certainly. All I was trying to say was that the loss was probably not entirely due to the euro, but it certainly played a big role.
Jordan couldn't have because he wasn't in the driver's seat back then
Certainly one can say now that it was a mistake, but back then everything was open...if the whole russia crisis hadn't played into it, it might as well have worked and a more orderly exit would have been possible. But you know what they say about hindsight As for the firms, they should be prepared for a strong franc or they've mainly got themselves to blame. It was clear that this situation wouldn't hold forever, and with the whole euro crisis, the possibility should have been taken into account for strategic decisions. At least they get their raw materiel cheaper now
gay_Aleks
from the river to the sea, Palestine will be free!
Did someone honestly passed a referendum for a gold standard? In Switzerland, of all places?
Not if there's an announcement in advance that on some random date the central bank will be invalidating a tenth of the cash in circulation based on serial number.
Terxpahseyton
Nobody
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Not for the average joe - but this already is the case for people with very large accounts at at least one German bank.
I am not sure if more German were harmed by it or profited from it. I actually lean towards profit. And if I find this likely, the German government will find it absolutely certain, since big buisness got its ear and big buisness surely profited from the Euro.
So.. nope.
gay_Aleks
from the river to the sea, Palestine will be free!
Nah, they'd just store it all in Luxembourg.
classical_hero
In whom I trust
Thank goodness I live in Australia, for the time being.
I don't think so. the initiative had no support, nobody wanted it. The current situation doesn't really change that. I mean, our problem is that our currency is too solid..not too weak.
It didn't pass
