Swiss National Bank (SNB) chairman, Philipp Hildebrand, resigned this week amid uproar over his wife’s personal currency trades. Kashya Hildebrand bought $500,000 in US dollars in August, weeks before the SNB imposed a ceiling on the Swiss franc in order to weaken it. The SNB’s aim was to temper the threat of deflation in the ailing, export-orientated Swiss economy after money fleeing the eurozone had driven the franc higher.
The central bank’s intervention sent the Swiss franc down sharply. So in October, when Kashya converted the dollars back into francs, she made a hefty profit. Hildebrand said this week that his position was untenable, as he couldn’t deliver definite proof that he hadn’t known about Kashya’s trades.
What the commentators said
Last week the story was that the trades were in compliance with the SNB’s code of conduct, said Nils Pratley in The Guardian. “OK, but it is an extraordinarily lax code that allows the wife of the country’s top central banker to buy $500,000 with francs” as long as she tells him afterwards. “Even the appearance of a conflict of interest can undermine a central banker’s credibility.”
Meanwhile, as far as its currency policy is concerned, the SNB remains in “a very tricky situation”, said FxPro.com. Markets have not mounted an assault on the limit of Sfr1.20 to the euro, which the SNB has vowed to defend by printing as many francs as necessary and buying euros. But it hasn’t helped the economy. Deflation is worsening – prices fell by an annualised 2.4% in the second half – and exporters still say the franc is hugely overvalued.
The policy could ultimately make things worse for Switzerland if the eurozone does take a turn for the worse, said James Saft on Reuters.com. There is a distinct possibility, for instance, that a loss of confidence in Italian banks could cause a flood of money to rush into the franc. If the franc were still freely floating, it would soar in the initial stages of such a panic, limiting the extent of the ‘safe-haven’ flows.
But because it is being held down, there would be “limited downside for fleeing Italians and the chance of big gains if the central bank ultimately blinks”. If the SNB then gives up on the policy amid the onslaught, the resulting damage to Switzerland’s economy as the franc is driven up “would be all the larger”.