it's the other way around, SNB printed CHFs and gave them away for cheap to EURs holders. they are the ones that can now buy switzerland.

i guess 1 trillion CHFs could easily be printed which i think would be enough to buy all listed swiss companies. if the EUR does collapse to zero, the SNB would effectively give away the all the major swiss companies for nothing.

Or is it Homer's Odyssey? Worth a listen if one has the time, it had me in stitches

Perfect timing. The SNB will be needing quite a bit of that.

I understand that the bank will lose a lot of money propping up the euro, I just dont understand how it will cause inflation in Switzerland

Also what is the effect on the CHF/US$ exchange rate?

If the press release is anything to go by then they will not back down from this, they want price stability if they allow the swissie to strengthen they will get deflation which they defo don't want, so for now they will print money like everyone else did to bring Switzerland inline...

I'm no expert, but pegging the xchg rate means that if it falls below the rate, they basically have to print money. Print money=devalue currency=inflation

I'd imagine the USD rises against the CHF from its current depths...

A sort of 'side note': On Monday the interest for Greek debt hit 82%.
I think for most people on this thread it is clear that Greek's chances of managing their debt are fairly slim.
And now Switzerland is throwing money into this bottomless hole.

I voted 'longer than a year'.

Britain's exit from the ERM proved that a central bank can't beat the currency markets if it is trying to strengthen it's currency.

But the SNB's situation is the opposite - can't a central bank with unlimited printing ability always weaken it's own currency?

Oh right, makes sense. Well from where i stand it looks like inflation couldn't have been avoided. They would have had to print money in all cases. Hopefully the threat though is going to keep the wolves at bay.

The currency was no doubt over valued. Export was becoming more and more nonviable. The major markets for Swiss goods and services, the Euro zone and the US are heading south wards. Now if this situation continues, we all just have CHFs which no one can afford and eventually our Good and Services would also become unaffordable. So something had to be done.

I am not an expert, but my simple words above sounds logical to me.

So what can the watch dog do. Set a limit against his biggest partners currency. Sounds OK so far.

Here comes my questions to the experts:
1. The SNB I assume is sitting on a huge pile of over valued CHF. Their pot would have appreciated many fold over the last couple of months. Now they are ready to say "OK fine. I am not going to take the profit. Let me pass it on to my sinking brothers". Is this simplification wrong?

2. The value was driven up by hoarders who were buying the CHF to keep it with them for bad times yet to come. Now they will have to sell as it wouldn't make sense for them as their stocks cannot appreciate more. Fair deal! Is this correct?

3. Why should there be inflation? For me there should only be less fear of deflation! We will still be paying the same price for domestic goods and services. Yeah our dream of the strong franc showing in our daily coop purchases and occasional splurges doesn't hold good anymore. Is this correct?

Will hold the rest of my questions for later

that's true, but at some point, someone must wake up and ask what exactly is the point of trashing the currency and giving away the wealth of the country?

or look at it the other way, they are trying to strengthen the euro, buying billions of a failing currency is never going to end well

Oanda still shows as 1.11228. You might give it a try using your Oanda account

SNB have pegged against the euro.
They can print money for ever but
the classic theory is that when you increase money supply then inflation follows.

If the euro crashes versus the US$ due to Greece & et al then the CHF will also crash versus the US$ if they keep the peg. If they do not keep the peg then it was a lot of money spent for nothing......

A point raised earlier on another thread that is valid. The SNB has not pegged the currency, only stated that they will not allow it to rise over the 1.20 vs. Euro point. No control in the other direction is proposed. This is not pegging as such.

Not if You see page called LIVE exchange rates

The Oanda live exchange rates are reflecting the new 1.20 rates:
http://www.oanda.com/currency/live-exchange-rates/

1. wrong
2. wrong

it's more like there is a nice big pot of jelly beans. and you have a token which entitles you to 1/10th of the pot.

people who have apples want to exchange it for jelly beans, but because the apples are a bit rank, we only want to give a few jelly beans for the rank apples.

what the SNB have done, is to say that the jelly beans are worth too much, so they made some extra tokens, so now instead of 1/10 share in the pot, you now have only 1/1000 share. however, they say it's ok, because it's made up for the fact that the pot now has lots of rotten apples in it instead of jelly beans.

meanwhile, the owners of the rotten apples are pretty happy since they managed to offload their rotten apples and received some tasty jelly bean instead.

and you will have inflation because before your token was worth 1/10 of the pot, but now you will need to accumulate 10x more tokens to get the same number of jelly beans.

My market analyst buddy asks "I must be missing something here - if a peg is the silver bullet the SNB think it is, why haven't the Japanese tried it?"

My understanding is that the SNB have decided to hold down the franc - and that of course means against all currencies. The GBP is currently up 1.36 and the USD is up at 0.85.

The SNB have simply chosen the floor to be measured in euros, as this is the most important trading currency for Switzerland. It is by no mean EU entry by the back door, but a franc-flooring exercise measured in euros.

The cost to the SNB and eventually the Swiss tax payers is potentially enormous. But the cost of doing nothing is potentially greater (ie a long term high franc). I think it will prove a good move. I should point out that I am usually wrong on such matters...