The SNB’s sudden removal of the 1.20 CHF/EUR exchange rate floor is difficult to understand and raises a number of problems:
• The Swiss franc’s appreciation will require the SNB to intervene by accumulating perhaps even larger quantities of foreign exchange reserves than if it had kept the floor; the objective to curb the increase in foreign exchange reserves will perhaps not be reached;
• Once an exchange-rate floor (or ceiling) has been removed, this instrument’s credibility has disappeared, and it cannot be used any more in the future;
• The appreciation of the Swiss franc is so strong that it will jeopardise Swiss industry’s competitiveness, while the SNB’s exchange-rate policy until now had managed to maintain quite robust growth in Switzerland with no deflationary pressures;
• The SNB could have tried to use a policy of very negative interest rates while keeping the exchange-rate floor before abandoning this floor;
• The central bank community decided several years ago to stop surprising financial markets and to announce important monetary policy decisions in advance so all financial market participants could have the time to hedge and avoid losses. The SNB’s sudden decision is in complete contradiction with this objective of central bank transparency
