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Swiss central bank under fire as franc move wreaks havoc AGENCE FRANCE PRESSE
NOTE OF CAUTION: A man receives several 50 euro bank notes from an ATM in Zurich. A surge in the Swiss franc saw investors flee equities and other risky assets, parking money instead in top-rated bonds.
GENEVA: Switzerland’s central bank came under fire at home and abroad after scrapping its bid to stop the franc rising, which wrecked havoc on global markets and bankrupted several foreign exchange traders. A brokerage firm in Britain and another in New Zealand declared insolvency while at home in Switzerland, exporters warned that they too could be put out of business by the Swiss National Bank’s sudden decision. “From an economic standpoint, this move is incomprehensible at the current time,” the Swiss Business Federation said in a statement, warning that the country’s vital export and tourism industries would be hurt. Swiss newspaper Le Temps charged in an editorial that the central bank was “guilty of naivety” and questioned if it had forgotten the stabilising role it should play on the markets and the economy. The SNB had “put its credibility at risk,” the newspaper said, while the Tribune de Geneve said the bank was “sinking the Swiss economy. A rout on Swiss stocks continued on Friday, with shares tumbling about 4 percent, after having already plunged 8.7 percent on Thursday.
The SNB had caught markets off guard Thursday with its shock announcement that it was abandoning the minimum rate of 1.20 francs against the euro that it had been defending for more than three years.
The Swiss currency immediately gained nearly 30 percent against the euro, before stabilising at around parity — which is still 15 percent higher than Wednesday’s rate. The boss of a small watchmaking company H. Moser & Cie underlined the impact of the SNB’s move in an open letter addressed to central bank chief Thomas Jordan, warning that he may have to move his business out of Switzerland. “Over 95 percent of our watches are sold to people outside of Switzerland, and the first retailers called the same day to cancel orders,” Edouard Meylan wrote. “In fact, one thought crossed my mind: why not just move two kilometers into Germany and continue business as usual in the EU?,” wrote Meylan, whose company employs 55 people.
Watchmakers are particularly jittery as the SNB’s decision comes just ahead of the luxury industry’s annual trade show, when buyers travel to Switzerland to place orders for the entire year.
Exporters are not the only ones fretting. The strength of the euro could also hurt domestic retailers as consumers flock to neighboring countries like France and Germany to shop for cheaper goods, including daily necessities.
Switzerland’s employers organization cautioned that such “purchase-tourism” would likely skyrocket.
But for consumers like Vanessa, a 28-year-old hospital orderly, “it’s like Christmas all over again!.” She was outside a Geneva foreign exchange office wondering whether to convert all her Swiss franc savings into euros.
Swiss banking giant UBS estimates that the SNB’s decision would deliver a severe blow to economic growth, and slashed its output forecast to just 0.5 percent this year from its previous estimate of 1.8 percent.
Casualties were also piling up outside Switzerland, with broker Alpari UK declaring insolvency after clients’ losses linked to the sharp rise in the Swiss franc were passed on to the company.
New Zealand foreign exchange broker Global Brokers NZ also said it was closing since “a majority of clients in a franc position were on the losing side and sustained losses amounting to far greater than their account equity.”
Another forex trading firm FXCM warned it may not be able to meet certain regulatory capital requirements as clients chalked up losses totalling some $225 million — a sum that the company could be left with.
In Poland, where 700,000 mortgages, or 40 percent of the total, are denominated in the franc, homeowners were meanwhile facing sharply higher monthly repayments
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NOTE OF CAUTION: A man receives several 50 euro bank notes from an ATM in Zurich. A surge in the Swiss franc saw investors flee equities and other risky assets, parking money instead in top-rated bonds.
GENEVA: Switzerland’s central bank came under fire at home and abroad after scrapping its bid to stop the franc rising, which wrecked havoc on global markets and bankrupted several foreign exchange traders. A brokerage firm in Britain and another in New Zealand declared insolvency while at home in Switzerland, exporters warned that they too could be put out of business by the Swiss National Bank’s sudden decision. “From an economic standpoint, this move is incomprehensible at the current time,” the Swiss Business Federation said in a statement, warning that the country’s vital export and tourism industries would be hurt. Swiss newspaper Le Temps charged in an editorial that the central bank was “guilty of naivety” and questioned if it had forgotten the stabilising role it should play on the markets and the economy. The SNB had “put its credibility at risk,” the newspaper said, while the Tribune de Geneve said the bank was “sinking the Swiss economy. A rout on Swiss stocks continued on Friday, with shares tumbling about 4 percent, after having already plunged 8.7 percent on Thursday.
The SNB had caught markets off guard Thursday with its shock announcement that it was abandoning the minimum rate of 1.20 francs against the euro that it had been defending for more than three years.
The Swiss currency immediately gained nearly 30 percent against the euro, before stabilising at around parity — which is still 15 percent higher than Wednesday’s rate. The boss of a small watchmaking company H. Moser & Cie underlined the impact of the SNB’s move in an open letter addressed to central bank chief Thomas Jordan, warning that he may have to move his business out of Switzerland. “Over 95 percent of our watches are sold to people outside of Switzerland, and the first retailers called the same day to cancel orders,” Edouard Meylan wrote. “In fact, one thought crossed my mind: why not just move two kilometers into Germany and continue business as usual in the EU?,” wrote Meylan, whose company employs 55 people.
Watchmakers are particularly jittery as the SNB’s decision comes just ahead of the luxury industry’s annual trade show, when buyers travel to Switzerland to place orders for the entire year.
Exporters are not the only ones fretting. The strength of the euro could also hurt domestic retailers as consumers flock to neighboring countries like France and Germany to shop for cheaper goods, including daily necessities.
Switzerland’s employers organization cautioned that such “purchase-tourism” would likely skyrocket.
But for consumers like Vanessa, a 28-year-old hospital orderly, “it’s like Christmas all over again!.” She was outside a Geneva foreign exchange office wondering whether to convert all her Swiss franc savings into euros.
Swiss banking giant UBS estimates that the SNB’s decision would deliver a severe blow to economic growth, and slashed its output forecast to just 0.5 percent this year from its previous estimate of 1.8 percent.
Casualties were also piling up outside Switzerland, with broker Alpari UK declaring insolvency after clients’ losses linked to the sharp rise in the Swiss franc were passed on to the company.
New Zealand foreign exchange broker Global Brokers NZ also said it was closing since “a majority of clients in a franc position were on the losing side and sustained losses amounting to far greater than their account equity.”
Another forex trading firm FXCM warned it may not be able to meet certain regulatory capital requirements as clients chalked up losses totalling some $225 million — a sum that the company could be left with.
In Poland, where 700,000 mortgages, or 40 percent of the total, are denominated in the franc, homeowners were meanwhile facing sharply higher monthly repayments
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