One year on: how did scrapping the euro cap affect Switzerland?
In January last year, the Swiss National Bank (SNB) decided to abandon its currency peg with the euro. This decision was taken largely in response to a weakening euro and soaring demand for francs, which have traditionally been regarded as a safe haven currency. Shortly after the SNB scrapped its euro cap, the Swiss stock market collapsed, and growth slowed. So what's happened since, and how could it affect you?
The immediate aftermath
A pegged rate of 1.20 Swiss francs to the euro was introduced in 2011 to bring down the franc’s value, in an attempt to protect Switzerland’s export market. In practice, this meant increasing the supply of francs relative to euros, and by 2014, the SNB had accumulated large foreign exchange reserves – around $480bn, almost 70% of Swiss GDP. Hyperinflation fears rose (as the SNB continued to print more francs in order to keep the peg), alongside further uncertainty in the value of the euro.
This left the SNB no choice but to unpeg the franc. Almost immediately after doing so, the Swiss franc appreciated just over 40% against the euro. Fears that Swiss businesses would suffer intensified when watch manufacturer, Swatch, revealed its share prices had fallen by 15%.
12 months later
The Swiss economy did suffer, as the strength of the franc meant that Swiss exports were more expensive in the eurozone – exports to the eurozone fell by 8% between January and September, compared to the same period in 2014. However, the Swiss have also experienced some day-to-day benefits thanks to a stronger franc. With imports comparatively cheaper, prices of consumer goods have declined by 1.1% in the last 12 months.
It is also worth noting that employment hasn’t suffered too much, and some businesses have even reduced their costs and become more efficient in order to remain competitive. SNB President Thomas Jordan said recently that “given the strong appreciation of the Swiss franc, the economy is doing relatively well”.
What’s next for the Swiss economy?
Further challenges for the Swiss economy lie ahead, including the generally gloomy outlook for European stock markets. According to the SNB, even the weakening prices of oil and China’s growth slowdown remain potential threats to Switzerland’s economic growth.
Find out more about what the scrapping of the Swiss franc cap means for you, and stay updated with the latest economic developments with our blog. Our trusted brokers will track market trends and political developments, so you’ll know whether to lock in today’s price or wait a little longer before making your next international money transfer.
