Question

Describe the effect of the 2008-2009 global financial crisis on the Swiss franc and the central bank's efforts to respond to the resulting problems.

Answer 1

During the financial turmoil of 2008, for instance, the Swiss franc gained appreciably as more investors fled unsafe assets and parked their money in Swiss francs, which they perceived as safe. And as the European debt crisis gathered storm in 2011, the Swiss franc appreciated against the euro to the extent that the Swiss National Bank began to provide support for the euro to maintain an exchange rate of at least 1.20 Swiss francs to a euro. The Swiss hoped that would help bring down the value of the Swiss franc and help the country maintain its price competitiveness in the export market. To provide support for the euro, the Swiss National Bank had to buy up euros using Swiss francs that it printed.

Central Bank Removes Support

Swiss citizens had been concerned that their central bank was inviting hyperinflation, or a period of very high inflation, by printing more money to buy euros, even though there hasn’t been any real evidence of this. Instead, there are more signs of declining prices in the Swiss economy. Nonetheless, in January 2015, the Swiss National Bank decided that it was no longer going to provide support for the euro. This came about in anticipation of the European Central Bank (ECB)’s move towards quantitative easing, which came about in March 2015. Through issuing more euros, the ECB will buy up the government debt of various Eurozone countries. Following the removal of the Swiss National Bank support, the euro has weakened against the Swiss franc.