Sunday, March 29, 2020

Why The Swiss Decided To Cut Links With The Euro

Must read

Financial Package On The Way For Self-Employed

Financial support is coming for freelance and self-employed expats who pay their taxes in the UK, Prime Minister Boris Johnson has promised. In his last...

Support For Dropping Helicopter Cash Takes Off

The time for more governments to consider dropping helicopter money on households trapped in dire financial straits due to the coronavirus outbreak is with...

How Coronavirus Is Impacting The Climate And How We Work

Coronavirus will change the way we live and do business, according to a technology expert. Up to now, the technology has been available but not...

Cost Of Living Overseas Is A Shock For Expats

The cost of living in a new country is a concern for many expats who find their bills are higher than expected. Half are forking...

Panic in the foreign exchange markets followed the sudden decoupling of the Swiss France from the Euro.

Hedge funds, forex speculators and stock markets all suffered as a result of the measure.

English Premier League football club West Ham shirt sponsors Alpari, a retail currency exchange, announced going into insolvency after suffering massive losses – but has backtracked on the statement and is reportedly in negotiating a rescue bid from New York listed FXCM.

FXCM took a $225 million quick loan fix to cover losses, the firm said over the weekend.

Neither company is commenting on the speculation.

No longer a safe haven

Meanwhile, West Ham reckons the move has cost them £650,000 in lost sponsorship.

So why did the Swiss take the decision quickly and quietly?

For a country renowned for financial prudence, decoupling from the Euro was out of character.

The problem for the Swiss was in 2011, the Swiss franc value was pegged with the Euro when foreign currencies around the world were in chaos.

For investors, the Swiss franc was a ‘safe haven’ currency considered less risky than other currencies.

But as money flowed into the Swiss franc from overseas, the value was pushed up while the value of the Euro was falling.

To compensate, the Swiss central bank presses were running hot printing more francs to push the value down.

Exchange rate tinkering ends in tears

However the value of all these extra francs floating around totted up to more than 70% of GDP.

This made Swiss exports more expensive and the cost of tourism has risen as switching from Euros to francs left Europeans paying much more for their winter holidays.

It may be the Swiss have got wind of the European Central Bank’s decision expected later in the week to start a quantitative easing program which will push down the value of the Euro even more.

The Swiss National Bank has reviewed growth figures for the year and forecasts an improvement of just 0.5% against a predicted 1.8% before the decoupling.

One key, highlighted by The Economist magazine is 20% of Swiss exports go to the US and India, and as a result of decoupling, prices of goods and service are a lot more attractive to these important markets.

The lesson, argues The Economist, is that tinkering with exchange rates always ends in disaster because a central bank cannot control what goes on outside its sphere of influence – in this case stagnation in the Eurozone.

- Advertisement -

More articles

LEAVE A REPLY

Please enter your comment!
Please enter your name here

- Advertisement -

Latest article

Financial Package On The Way For Self-Employed

Financial support is coming for freelance and self-employed expats who pay their taxes in the UK, Prime Minister Boris Johnson has promised. In his last...

Support For Dropping Helicopter Cash Takes Off

The time for more governments to consider dropping helicopter money on households trapped in dire financial straits due to the coronavirus outbreak is with...

How Coronavirus Is Impacting The Climate And How We Work

Coronavirus will change the way we live and do business, according to a technology expert. Up to now, the technology has been available but not...

Cost Of Living Overseas Is A Shock For Expats

The cost of living in a new country is a concern for many expats who find their bills are higher than expected. Half are forking...

Spending Cash Is Becoming A Thing Of The Past

The days of handing over cash could be numbered as the economy is in a shift to digitisation, warn campaigners.