Bloomberg News

SNB’s Jordan Says Cap on Swiss Franc Is 'Indispensable'

April 20, 2013

Swiss National Bank (SNBN) President Thomas Jordan said the country’s franc remains highly valued against the euro and he has no intention of loosening the cap of 1.20 per euro.

The exchange rate target is “indispensable,” Jordan said yesterday in Washington, where he was attending the Spring Meetings of the International Monetary Fund. The cap is the only option “to avoid a deflation spiral and a destruction of the economy.”

The Zurich-based SNB set a cap of 1.20 per euro on the franc in September 2011 to ward off recession as well as deflation. The franc had risen strongly against the euro and nearly touched parity the previous month as a result of investor concern about the euro area’s fiscal crisis.

“All reasonable countries accept that what we did is legitimate,” Jordan said. “They see that we have reacted to an excessive over-valuation” of the Swiss franc.

The 17-nation euro area is Switzerland’s biggest trading partner, and at its most recent policy review in March the SNB warned of the risk of tensions in the euro area increasing again, which would put more upwards pressure on the franc.

Foreign Currency

In 2012, the SNB spent 188 billion francs ($201 billion) buying foreign currency to defend the ceiling. Without the cap the economy would have suffered a recession, Swiss policy makers have said, and they have also repeatedly stressed there is no risk of inflation for the foreseeable future.

Switzerland is in “a difficult situation,” Jordan said yesterday. “Our exchange rate policy hasn’t been criticized or questioned by other countries in the past days here in Washington.”

The SNB sees Swiss economic growth of as much as 1.5 percent this year, with consumer prices declining 0.2 percent for 2013, before rising 0.2 percent in 2014.

The SNB has sought to diversify its reserves, about half of which are held in euros. It started buying South Korean won last year, after expanding into Singapore dollars, Danish krone and Swedish krona previously.

SNB Board Member Fritz Zurbruegg said in an interview published earlier this month that the SNB is keen not to disrupt markets with its asset management and that it is always looking at diversification opportunities. The SNB also has no plans to buy or sell gold, Zurbruegg said in the interview. “We invest our reserves very carefully,” Jordan said yesterday.

Swiss Economy

SNB Vice President Jean-Pierre Danthine said the Swiss economy is vulnerable to instability in the banking sector caused by an unsustainable rise in mortgage debt.

Swiss real estate prices have risen sharply due to the SNB’s loose monetary policy. In a bid to thwart risky lending, the government in February ordered banks to hold additional capital as a buffer. The requirement, implemented at the behest of the SNB, takes effect from Sept. 30.

To contact the reporters on this story: Stefan Riecher in Washington at; Catherine Bosley in Zurich at

To contact the editor responsible for this story: Craig Stirling at

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