Swiss National Bank President Thomas Jordan predicted that the franc will continue to weaken and rejected the notion that central banks are engaging in a currency war.
The currency is “still at a high level even at the current price,” Jordan told reporters in Geneva today. “Consequently we expect the franc to continue to fall and weaken.”
The SNB imposed a ceiling of 1.20 francs to the euro in September 2011 to fend off deflation after the currency almost reached parity with the euro. The world’s major industrial nations today sought to soothe mounting fears of a currency war with a pledge to avoid devaluing their exchange rates in the pursuit of stronger economic growth.
The franc cap “has nothing to do with a currency war, but it was necessary just to limit the negative impact of the appreciation of the Swiss franc in Switzerland,” Jordan said. “I don’t think that central banks worldwide are in a currency war,” Jordan said. “Central banks’ monetary policies are internal programs” and focused on “domestic problems.”
Japan’s monetary policy has come under scrutiny on concern that a new campaign to beat deflation is an outright attempt to weaken the yen, an allegation its government has repeatedly denied. Jordan today backed Japan’s approach.
“In Japan there’s a problem that domestic demand isn’t sufficiently strong and it has experienced light deflation for some time,” Jordan said. “Japan and the Japanese central bank are trying to change policy in the direction to avoid deflation and in order to stimulate growth.”
Exchange rates should be left to the markets except in “extreme” cases as Switzerland, Jordan said. The ceiling didn’t push the franc to a level where it gave the country a competitive advantage and was a “defensive” move, he said.
To protect the franc limit, the central bank has piled up record foreign-currency reserves, with holdings rising more than 50 percent to 427 billion francs ($466 billion) since the ceiling was introduced. That made it the world’s biggest foreign exchange-rate manager in 2012, overtaking China, according to a BGOV Barometer published in December.
The motives for the introduction of the cap “are still valid,” Jordan said. “The ceiling remains the adequate instrument to maintain the stability of prices.”
The franc has weakened 2 percent against the euro this year as confidence in the 17-nation euro area increased. It was trading almost unchanged at 1.23279 francs per euro as of 1:18 p.m. in Zurich, after rising to as much as 0.4 percent earlier today.
“The risk of franc volatility will persist as long as the fiscal problems in the euro region aren’t resolved,” Jordan said. While the central bank is ready to take additional measures if required, Jordan said that he didn’t see the need for such steps for the time being.
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