Bloomberg News

SNB Franc Ceiling of 1.20 Is ‘Very Credible,’ Jordan Says

September 29, 2011

(Updates with comments from Jordan in second paragraph.)

Sept. 29 (Bloomberg) -- The Swiss central bank’s franc ceiling of 1.20 versus the euro is “very, very credible,” Vice President Thomas Jordan said.

“Our policy is crystal clear,” Jordan said at an event in Basel late yesterday. The Swiss National Bank “introduced a minimum exchange rate versus the euro and we will use all measures to defend it. This very clear commitment has led to us being taken very seriously in the market. We’re not afraid of markets.”

The SNB on Sept. 6 imposed a franc ceiling for the first time since the 1970s and resumed purchases of foreign currencies to protect the economy. Efforts to stem franc gains in the 15 months through mid-June 2010 boosted currency holdings on the bank’s balance sheet and contributed to an annual loss of $21 billion as the euro’s value plummeted.

The franc, considered a haven in times of turmoil, has remained above 1.20 versus the euro since the SNB imposed the ceiling. It reached an all-time high of 1.0075 on Aug. 9 and traded at 1.2217 against the euro at 9:08 a.m. in Zurich.

Jordan declined to comment on whether policy makers will raise the cap.

Slowing Growth

While Swiss lawmakers had previously criticized the SNB’s intervention policy and called for President Philipp Hildebrand to resign over the losses, faltering economic growth and waning export demand have since prompted all five government-coalition parties to support renewed efforts to weaken the franc. The KOF Economic Institute on Sept. 27 cut its growth forecasts for both this year and next, and said the franc remains overvalued.

Before imposing the cap, the SNB’s foreign-currency holdings jumped to a record 253.4 billion francs ($282 billion) at the end of August. That’s about half of Swiss gross domestic product. It will publish September reserves on Oct. 6.

Jordan said a central bank “cannot become illiquid” and the franc ceiling helped reverse some foreign-currency losses.

“Yet, even with the minimum exchange rate, our balance sheet remains vulnerable to valuation changes,” he said. “Unfortunately, the risks have not disappeared. Losses could still occur on other currencies, or on gold. The amounts involved can build up rapidly, owing to the size of the balance sheet.”

‘Thin Air’

The Zurich-based SNB is able to create francs “out of thin air,” Jordan said, suggesting policy makers have enough firepower to ward off investors if needed. The central bank has also lowered borrowing costs to zero and boosted liquidity supply to the money market to weaken the currency.

The SNB’s decisions are “always driven by motives other than profit,” with policy makers aiming to ensure price stability while “taking due account of the development of the economy,” he said.

“This extensive use of monetary-policy tools was, and remains, necessary to ensure the fulfillment of our legal mandate,” Jordan said. It “enabled the SNB to weather the effects of the recent crisis relatively successfully” even if the measures “have taken a considerable toll on our balance sheet and our income statement.”

--Editors: Simone Meier, Jennifer M. Freedman

To contact the reporter on this story: Klaus Wille in Zurich at

To contact the editor responsible for this story: Matthew Brockett at

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