Swiss currency cap still needed: SNB official

The risks for Europe's economy remain too serious to allow Switzerland's central bank to change its currency cap, a member of its governing body said in an interview published on Monday.

Swiss currency cap still needed: SNB official
Fritz Zurbrügg. Photo: Swiss National Bank

"The economic environment worsened again at the end of last year and the growth outlook was lowered," Fritz Zurbrügg told the daily Aargauer Zeitung, adding that exchange-rate risks were still on the cards as a result.

"For that reason, the minimum exchange rate remains key," said Zurbrügg, who joined the governing body of Switzerland's central bank in August 2012.

In September 2011, the central bank fixed a minimum exchange rate of 1.20 Swiss francs to the euro.

Investor flocked to the Swiss franc, traditionally regarded as a safe-haven currency, as worries grew over the debt crisis in the eurozone.

An overvalued franc hurts the competitiveness of Swiss industry, however, thereby harming exports, and concerns about the economic impact drove the central bank to step in in 2011.

But with the recent revival of the long-embattled euro, the Swiss franc has lost strength, trading over recent days at close to 1.23.

That has fuelled speculation that the central bank could raise the floor.

Zurbrügg declined to say whether the bank was considering such a move, saying the minimum rate remained an important.

"We introduced the minimum rate to stem the rapid, major appreciation of the Swiss franc," he said.

"We achieved that goal and we defused the risk of a deflationary trend."

Zurbrügg said that the Swiss franc nonetheless remained overvalued against the euro.

"The minimum exchange rate is an exceptional measure, not a tool for adjusting monetary policy," he said.

"The minimum exchange rate remains the most appropriate instrument for price stability in the foreseeable future."

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


Why is the demand for 1,000-franc banknotes growing in Switzerland?

Large-denomination banknotes, like the 1,000-franc note, are rarely used for everyday transactions in Switzerland. So why are they becoming more popular?

Why is the demand for 1,000-franc banknotes growing in Switzerland?
The kind of banknotes the Swiss like to stash away. Photo by AFP

The demand for 1,000-franc notes has risen in the past months, data from the Swiss National Bank (SNB) indicates.

CHF1,000 converts to approximately €925.75, £824,63 or $US1126.98. 

Whether withdrawing the money from an ATM machine or directly from a bank, customers request large-bill denominations more often than before.

“We do know there is more cash being currently withdrawn in large notes, but it changes hands less often” Sarah Lein, a monetary policy expert from the University of Basel told SRF public broadcaster.

This means the money is not being spent but stashed away.

“We can conclude that some large notes end up in a safe”, she added.

READ MORE: Switzerland’s economy forecast to recover 'from summer onwards' 

The reason, she said, is that many banks charge their customers negative interests on large deposits.

“Therefore, it could be cheaper to simply withdraw the cash in large notes and keep it in a safe, especially since inflation has been extremely low for a long time”, Lein added.

This is not unusual — in times of crisis, more cash is often in demand.

But could this cause the shortage of 1,000-franc bills?

That is not likely to happen, Lein pointed out.

“Both the central and commercial banks have enough cash stored in their vaults to meet such demand. So there is always enough money available”, she said.

There is about 48.6 billion francs floating around in the form of 1,000-franc notes, constituting 59 percent of all Swiss notes in circulation. 

It is the world’s second-largest denomination after Brunei's B$10,000 note.

READ MORE: What do people in Switzerland spend their money on?