Francogeddon: A Eurozone Luxury Problem?

Even though the rest of the world’s working poor dismiss it as a mere Eurozone luxury problem, will the Swiss franc no longer being pegged against the euro affect working class Swiss citizens?

By:Ringo Bones 

Back in January 16, 2015 the headline “Francogeddon” rattled the Eurozone economy when the Swiss government suddenly decided the morning before to suddenly “unpeg” the Swiss franc against the euro. The resulting monetary policy move resulted in the Swiss franc rising 40-percent against the euro to 0.85 Swiss francs against the euro as the Swiss government removed the cap on Thursday morning January 15, 2015 before settling down a few days later. 

Inevitably, Swiss stocks lost 10 percent of its value resulting in billions of dollars being wiped out in their value and a New Zealand based currency brokerage and investment firm Global Brokers NZ was driven into bankruptcy as soon as the de-capping of the Swiss franc hit the fan. And also, this results in additional burden to mortgage holders whose mortgages are in Swiss francs. But why did the Swiss government made such a seemingly “bone-headed” move? Well, at least the Swiss people now wanted why the powers-that-be of their central bank made such a move and wonders whether if the Swiss National Bank’s managers are really up to the job. 

As of late, central banks now have a hard time maintaining economic stability on their own in their respective jurisdictions. During the past three and a half years, the Swiss National Bank capped the value of the Swiss frank at 1.20 Swiss francs to the euro. Such monetary policy had made the Swiss franc one of those “safe haven investments” instrument akin to gold or the Japanese yen. Keeping the value of the Swiss franc artificially low – according to Swiss government economists – benefits the Swiss tourism and manufacturing industry by making their products and services lower in cost in comparison to the neighboring competition. Sadly, 99-percent of the world’s population still can’t afford to buy an entry-level Rolex or go skiing to the Swiss Alps on a whim.