MarketWatch First Take Archives
Sept. 6, 2011, 12:24 p.m. EDT
A near-peg to a currency that might vanish
Commentary: A win on Day 1, but SNB action may yet backfire
WASHINGTON (MarketWatch) — It takes a certain amount of desperation to link your currency to another that may not exist in a few year’s time, and the Swiss National Bank certainly demonstrated that Tuesday.
In pledging unlimited resources to keep the euro from falling under 1.20 francs, the Swiss National Bank took the second-most aggressive step (short of an outright peg) to combat the surge of as much as 35% against its top trading partner.
On Tuesday, the move clearly paid off, with an instant 9% decline in its currency, though the pair’s exchange rate was just a bit over 1.20 francs. That doesn’t, however, mean that the SNB’s currency-weakening plan will work over the longer term.
There are a couple of problems with their approach. The first, they don’t have the support of the other side — the European Central Bank isn’t helping out. Coordinated currency action always is more effective than are unilateral moves. The second is that the SNB might not have the ammo to defend its currency if traders really want the safety of the franc and/or the central bank can’t tolerate a buildup in inflation.
But there’s also the small matter that they can’t possibly know the true direction of the euro. There are two plausible break-up scenarios that could yield wildly divergent results — one where the strong countries like Germany leave, another where such weak countries as Greece exit.
Full story: http://www.marketwatch.com/story/a-near-peg-to-a-currency-that-might-vanish-2011-09-06
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
| 
