More can be found here (FT.com/alphaville)
http://ftalphaville.ft.com/blog/2011...taux-dinteret/

P.

Music to my ears....

I'm currently planning my wedding back in the UK and the exchange rate will certainly help us add those extra little 'bells' and 'whistles' to the day...

GOOO Swissie!!!

Theres one happy ending anyway!

this is what they should have done instead of QE. still it comes at a price, but i guess a decrease in the already very high standard of living for the swiss is a price that can be afforded.

maybe some of those trading eur/chf as a gold alternative will switch back to gold now.

By increasing liquidity by cancelling all repo renewals and snb bills and repurchasing outstanding bills they will effectively be moving interest rates into negative territory. Interesting times on their way.

Oh well, euro is under 1.10CHF again - fun while it lasted.

What will the SNB do next? Put on a funny hat & do a currency devaluation dance?

See above, these measures are not like a MacDonalds Burger delivery, the effect takes weeks to take on. eg any mortgage taker in Switzerland today will be looking to reduce his interest rate whilst the banks will be looking to offload that added liquidity.
See?

See?
Not really - people who are worried about the major currencies will continue to stuff their funds into CHF.

If interest rates go negative then I suppose options are to take your CHF in cash & stuff it under the mattress (risky option!).
Or I suppose (I am no expert) you could open a Swiss Franc account in a non Swiss bank which would probably, at worst, pay zero interest?

About "any mortgage taker in Switzerland today will be looking to reduce his interest rate whilst the banks will be looking to offload that added liquidity".
Sounds like a driver for a big property bubble but how will that make the currency weaker?
Not arguing against you; just do not understand the process?

Well the SNB plan is to increase liquidity to discourage inflow of funds and to increase lending domestically, therefore the best bet for a bank that has excess liquidity today due to the fact that the SNB is neither issuing new bonds and also repossesing old debt, is to place it into a secure environment ie mortgage debt or to sell the CHF and loan it in Euro. Either way they weaken the Chf
For those wishing to place in Chf in Swisslands, well they get 0 interest plus a handling charge from the swiss bank thereofr its a negative return,
as I see it.

negative interest will only be a minor deterrent. people are happy to buy gold and pay storage costs etc. because the capital increase outweighs the negative 'interest'. ditto for the CHF. though from my chart above, the implied volatility of EUR/CHF detached from gold a while ago.

recently, it seems that people have been trading EUR/CHF as an alternative to buying gold.

I guess that the big property bubble that they were moaning about a few months ago and as recently as just a couple of weeks ago (that i read) is no longer an issue anymore. Its a shame that the economy doesnt work by pushing big round buttons, if only the CB's knew that.

THIS part in fact is the most important one :
SNB SAYS WILL VERY SIGNIFICANTLY INCREASE THE SUPPLY OF LIQUIDITY TO THE SWISS FRANC MONEY MARKET OVER THE NEXT FEW DAYS
-
They now follow exactly the recommendations of Nick Hayek, the outspoken Swatch chief. And as they now have startet it, they will have to continue. Just as in the days of late SNB President Fritz Leutwyler, there may be a tiny bit more inflation in the next few months. But the SNB can take the money printed back via the back door.

************************************************** *********************

<> Nick Hayek IS at work, and has no reason, none at all, not to speak out !
<> The interventions of Fritz Leutwyler in his time DID work, thoroughly AND long-term
<> the SNB has not to guard the international finance markets, but the market-position of Swiss industry and tourism
<> the money they were losing earlier this year were "Buch-Verluste" (book-losses). They with the profits of earlier years bought gold nobody here needs, parts of which can be sold now.
<> a hopeless currency is the CHF right at present, a currency which damages the economy of its country
<> bail-outs ? What about the bail-out here in Switzerland for the UBS, where the Confederation wasted enormous sums just to keep a company in Swiss hands ! I would have been in favour of the Confederation purchasing that stuff and sell it to the Credit Lyonnais or the Mashreek Bank in Dubai or the National Bank of Abu Dhabi, while using the money to replenish the funds of the AHV
<> that the other countries in the world by "printing" lower the exchange-rate of their countries (on intent ?) is clear. And that Mr Hildebrand hates this solution at least as much as you do is obvious and in fact correct, but, just as Nick Hayek has made it public, it is the only way. By printing money, the SNB now will not only increase the too low mass of "internal" Swiss money, it will partially at least absorb the Buch-Verluste of the recent past, AND will get money to purchase THE Euro.
<> the business council of course makes it heard. Business cannot accept everything !
------
<>> you btw. in recent days may also have heard the many lowkey sounds from Germany, where the German top brass in government and economy suddenly becomes far friendlier towards Switzerland than in the past 15 years. Looks as if the Germans, being INside the Euro and Switzerland being OUTside the Euro, realize the many common positions of the two countries.

************************************************** ****************************************

The SNB has NOT YET begun to print ! Your idea is new to me. New, that measures not yet taken, upon announcement, have an effect

The SNB in the 70s under Fritz Leutwiler had capital controls plus extensively manipulated the CHF exchange rate (summary of measures taken then are available here: http://www.cbo.gov/doc.cfm?index=5981&type=0). The penalty for exchange rate manipulation was heavy inflation - which only became apparent several years later, as there is about a 2-year time lag for inflationary effects to work its way through the economy. I remember reading that Leutwiler regretted the move (from some speech he gave in the 70s) - but my memory isn't so clear on that point now.


The magnitude of today's changes v.s. the 70s situation however are of a different order. Today almost all major currencies are weak, there's no longer any Deutschmark. Is the CHF "overvalued"? If it is, then SNB would be right to intervene. However, it's difficult to decide if the CHF is "overvalued" as other currencies are going through an existentialist crisis themselves... there's simply too much uncertainty.

However, what is clear that it is almost pointless for the SNB to go against the markets. The SNB's forex intervention yesterday was an epic failure - see chart here: http://www.zerohedge.com/news/swiss-...on-epic-fail-2


Inflation in CH would likely be heavy. 2% inflation is actually very high - as Paul Volcker pointed out, that means in a generation's time you lose half your purchasing power. And we know that real inflation is several times that of reported inflation statistics.

The recent SNB moves are practically meaningless. They might as well tighten monetary policy to dampen inflation, as any interest rate changes would probably have negligible effect on the CHF exchange rate (little change to investor appetite).

Hildebrand just isn't very good.


Hildebrand had previously talked about the "success" of SNB's gold sales in the early 2000s, which turned out perhaps to be the biggest blunder in the history of finance - about half the SNB's gold hoard was sold off at an average price of $350. At today's gold prices, they have effectively lost about $55 billion - that's almost $8 billion per Swiss citizen, and this figure is sure to grow. Of course, this fact doesn't appear on the balance sheet unlike the euros.

So including forex losses, the SNB has lost about $9-10 billion per Swiss citizen. Who cares about unemployment and economic output - when everyone could have afforded to be unemployed! Each receiving $10 billion and enjoy high living for the next 100 years...

Alternatively, it would have been more effective to directly subsidise industry, bailing out companies, expanding social welfare - than having forex intervention/quantitative easing.


Do SNB's losses matter?

SNB's money is the people's money. There's a reason why the CHF used to have a legal 40% gold backing (this requirement has since been removed by referendum, which in my view was not wise). The idea is that the central bank purchases good assets - and gold used to be such in the past (perhaps today too, but the gold markets are now heavily rigged). The SNB could alternatively purchase mines, islands, additional land in Asia... so long as they qualify as a good asset. Currencies and foreign bonds are assets which might not fall into this category as they deteriorate in value (and perhaps of no value). What the SNB has been doing is almost equivalent to giving away CHF (i.e. Swiss assets) for crappy assets.

Both UBS and Credit Suisse are not faring well, and are heavily exposed to future financial shocks - this could eventually weigh heavily on the CHF. Their American operations would be better to be spun off (as a friend point out, they are really American banks). From this perspective, the strength of the CHF is illusory (there is a lot of CHF-denominated debt held in other countries too). As the current monetary order is collapsing and the situation seems to have little prospect of improving - SNB's decision to sell its gold hoard has not only impoverished the country, but it has limited the SNB's ability to act which could eventually prove fatal not only for the CHF but for Switzerland. We'll see.

Some nice articles:

Freedom is lost in small steps
http://lips-institute.ch/en/wp-conte...IsLost.pdf.pdf

Interview with Swiss Banker #1
http://lips-institute.ch/en/wp-conte...dmoney.pdf.pdf

Interview with Swiss Banker #2
http://www.thedailybell.com/bellincl...=360&order=asc

Gold Wars: The Battle Against Sound Money As Seen From A Swiss Perspective
http://www.amazon.com/Gold-Wars-Batt.../dp/0971038007

Great post but Im a bit lost on the maths

This is very common, in fact the effect can often start before the announcement, in anticipation of it.

Maths is a bit dodgy (Switzerland is small, but not that small), but a good point all the same.

agreed. certainly enough to directly subsidise certain jobs for a couple of years.

One could also argue that the SNB's blunders of selling gold at the bottom of the market and buying 320billion euros earlier this year at CHF1.40 were moves that actually benefited the franc by holding down its value somewhat.

If the SNB still held the gold at today's rates and had not bought into the falling euro, what would the franc be worth now??

So much that EF would have precisely 6 members !