By TraderVox.com
Tradervox.com (Dublin) – Fritz Zurbruegg, one of the Swiss National Bank Governing Board members, has indicated that the franc ceiling is an extreme measure that opens the economy to considerable risks. According to his statement yesterday in Lucerne, Zurbruegg indicated that the minimum exchange rate set by the SNB has been supported by the general public and the political class as well. He however warned that it should be regarded as an extreme measure and it does not solve all the problems facing the economy. Further, he said that the measures taken by the central bank carry considerable risks to the economy.
The Swiss National Bank introduced a 1.20 francs per euro ceiling in September 2011 to prevent the franc from strengthening against the euro. The measure was introduced to safe gourd exports trade in the country which was being hurt by a strong franc. Despite Zurbruegg refraining from specifying the dangers he talked about, he referenced an April 27 speech by the then Central Bank Governor Thomas Jordan who indicated the danger of considerable expansion of foreign currency reserves holding.
Most countries facing financial crisis in Euro region have accused Swiss National Bank of buying bonds from well-off economies hence forcing them to deeper financial crisis as their yields skyrockets. Since the introduction of the ceiling, the central bank has piled a large amount of unprecedented currency holdings to defend the ceiling. The foreign reserve have swelled to 70 percent of GDP since September 2011.
Zurbruegg indicated that the excessive strengthening of the Swiss franc is a monetary issue and it carries the risk of deflation. He also noted that the price stability is not under threat in short-term, but he argued that the SNB will face difficulties in returning the monetary policy to normal in a timely manner. He reiterated the SNB purpose of ensuring price stability while taking due account of the economy and gave the assurance that the bank will do everything possible to fulfill this mandate.
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