SNB’s Shock Cap Exit Met With Stoic Acceptance Among SwissCatherine Bosley and Corinne Gretler
The Swiss National Bank’s scrapping of its cap on the franc, which rocked foreign exchange and equity markets around the world, is being accepted with resignation by many at home.
The central bank, led by Thomas Jordan, is generally well regarded in Switzerland, with a survey of company executives this month giving it better marks than the government. The surprise policy shift on Thursday in Zurich, which caused the franc to shoot up against the euro and Swiss blue-chip stocks to slump, is regarded as unwelcome but necessary.
“Even if the knee-jerk reaction is to be upset, there are very good reasons and very justified reasons for the way the decision was taken,” said Henrique Schneider, head of political economy at Swiss Business Association SGV, which represents 300,000 companies. “If they’d used forward guidance, they’d have politicized the decision.”
Meanwhile, online news portal Inside Paradeplatz, which in the past has criticized the central bank, ran the headline “Tommy Rocks: SNB-Boss Frees Switzerland.”
While Switzerland is famous for banks like UBS Group AG and Credit Suisse Group AG and drug maker Roche Holding AG, small and medium-sized businesses, some of which produce high-quality engineering products, are the backbone of the economy.
The euro area is Switzerland’s biggest trading partner, though in recent years the share of exports to Asia -- where sales are often denominated in dollars -- has risen. Watchmakers have particularly benefited from demand in China and Hong Kong.
“Mr. Jordan and others also know why they did it, they must have a very specific reason to have done it,” Jean-Claude Biver, head of LVMH Moet Hennessy Louis Vuitton SA’s timepiece unit, said in an interview. “We’ll find out, one day, that it was a good decision.”
The SNB’s decision constitutes a particular challenge for the export and tourism sector, the government said yesterday, adding that the cap was a “good, though always temporary instrument” and that it “trusts the central bank will guarantee price stability while taking economic developments into account.”
The country’s two biggest parties differed in their reaction, with the Social Democrats accusing the SNB of “playing with fire,” while Thomas Matter, Chairman of Neue Helvetische Bank AG and a member of parliament for the Swiss People’s Party called the move “courageous.”
“You can always talk about timing, but this was a step that had to happen,” he said. In response to whether Jordan remained tenable as SNB president, Matter said “definitely.”
When the SNB set its minimum exchange rate in September 2011 amid Europe’s sovereign debt crisis, it billed it as a temporary step, taken after the franc had spiraled up sharply against the euro in the course of just a few days and threatened to sink the export-oriented economy into recession.
“It was foreseeable from beginning that it was a temporary measure,” Jordan said at a news conference in Zurich yesterday. “We went over our books and came to the conclusion that it’s better to exit now than in six or twelve months when the situation could be even more difficult everywhere.”
Through its defense of the cap, which involved selling francs for euros, the SNB saw its assets expand by more than a third in the past three years. That increasingly raised eyebrows in Switzerland, which has refused to join the European Union and where a group of citizens last November called a referendum to force the SNB to hold more gold.
“It was clear that the cap had to be exited,” said Ruedi Noser, member of parliament for the pro-business Free Democrats. “But the Swiss economy has always succeeded in adapting until now,” he said. “The question is: do we have a choice? No!”
After the cap was abandoned, Credit Suisse said it briefly stopped accepting euros for exchange at its branches because of high volatility on the market, while Postfinance, a state-owned Swiss consumer bank, suspended currency exchange for clients and distribution of euros through its cash machines.
Economic growth could also stutter. According to the KOF Swiss Economic Institute, the fully floating exchange rate will weigh “markedly” on the economy and on consumer prices.
Still, according to an online survey by tabloid Blick, 57 percent backed the SNB’s decision to exit the cap. Twenty-five percent said it was a bad move, as of 11:07 a.m. in Zurich today.
The SNB’s governing board consists of three members, with decisions taken by consensus, and they don’t publicly disagree with one another. The government recently extended Jordan’s term as president until June 2021.
“The SNB’s step may be hard to digest and in some cases meet with a lack of understanding, but you can also justify it,” said Jan-Egbert Sturm, head of KOF. “We shouldn’t draw hasty conclusions.”
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