Swiss National Bank Appoints Fritz Zurbruegg to Policy Setting Committee
The Swiss National Bank has appointed a rather dark horse to fill its third seat on its policy setting committee following the resignation of former Chariman Phillip Hildebrand over a currency trading scandal. Fritz Zurbruegg, formerly an economist with the finance ministry in Switzerland, will join Chairman Thomas Jordan and Vice-Chairman Jean-Pierre Danthine on the policy setting committee.
Mr. Zurbruegg is a noted fiscal conservative, having made many politically difficult decisions while employed by the finance ministry to balance the budget. He will now be tasked, along with Mr. Jordan and Mr. Danthine, with maintaining the currency cap and managing forex reserves so as to keep the Swiss franc pegged to the euro at 1.20 euros per franc. He will be forced to balance the demands from exporters who want an even weaker franc to boost exports, and politicians who are concerned that the SNB is over-exposing itself to the ailing euro.
Maintaining a peg is very dangerous for the SNB, as they are forced to buy essentially limitless amounts of euros to offset market flows. Investors and savers alike were swapping euros for francs and parking the cash in Swiss banks so as to keep their money outside of euro-area banks. However, the prospect of negative interest rates and taxes on deposits from foreigners were not enough to keep capital from flooding into the nation, boosting its currency.
In response, last September the SNB vowed to buy limitless amounts of euros to maintain a peg in the currency. In doing so, the bank has bought lots of euros and now Swiss politicians are questioning the credibility of the bank in its policy. These politician's fears are well grounded, as the Bank of England went through a similar crisis in the 1990's. The BoE, along with other European nations, fixed exchange rates ahead of the implementation of the euro. Famed investor George Soros shorted the pound, thinking that the Bank of England could not sustain this policy, and was correct. The pound devalued markedly and England was unable to join the euro due to the volatility of the currency.
As a fiscal conservative, it will be interesting to see if Mr. Zurbruegg dissents from the veteran policy makers in any course of action. The EUR/CHF has traded in a tight range between 1.2005 and 1.2020 for most of the time that the peg has been in place and could represent trading opportunities. Traders who are quick enough could buy the dips towards 1.20 and sell towards the 1.20 level and repeat multiple times over for a quick profit.
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