- Money Morning Australia

Swiss National Bank Intervenes in Currency Market to Devalue Swiss franc

Written on 07 September 2011 by Kris Sayce

Swiss National Bank Intervenes in Currency Market to Devalue Swiss franc

“Manipulation on a Grand Scale”

In recent months we introduced you to one of our early warning signals – the Swiss franc.

The importance of this signal is that it can give you a clue as to how nervous – or not – the market is.

For instance, when investors piled into the Swiss franc in late July through early August, it warned you to be cautious about the market.

And when they piled out in mid-August it still warned you to be cautious, but signalled that you could take advantage of the change in sentiment. For example, by selling your stocks on the rally.

For the past two months the Swiss franc has been volatile. From one day to the next, investors can’t know for sure whether they should be bullish or bearish.

So, in August the Swiss franc soared in value against the risky Aussie dollar as the market hit bottom. And then it lost value as markets calmed.

Early warning signal crippled


Then last night, this happened:

Source: Yahoo! Finance


After gaining against the Aussie for the past week – from CHF0.87 to CHF0.82 – all heck broke loose in the foreign exchange markets. The Swiss dropped from CHF0.82 to trade at CHF0.90… a 10% move.

What caused this move? Check out this statement from Philipp Hildebrand, chairman of the Governing Board of the Swiss National Bank:

“The Swiss National Bank is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF exchange rate below one Swiss franc twenty. The SNB will enforce this minimum rate with the utmost determination. It is prepared to purchase foreign exchange in unlimited quantities.”

In other words, at the stroke of a button, the Swiss National Bank intervened in the currency market to devalue the Swiss franc.

It takes us back to the early 1990s when the U.K. government tried to keep pound sterling in the pre-euro, European Exchange Rate Mechanism (ERM). In short, the pound was allowed to trade within a range against other currencies…

It worked for a while (just), but eventually no amount of manipulation could stop the pound falling out of the ERM. Of course, George Soros’s famous punt against the pound didn’t help things either.

The point is the artificial restraint of the pound only masked the real problems. It created more volatility in FX markets and ultimately, when the pound was dumped, it fell 30% in just a few months.

So what can we expect from the SNB’s intervention?

For a start, it means the same as all intervention. It means a distorted market that only serves to deceive investors.

While the currency was free-floating it gave you, and every average Joe or Joanne Investor an insight into what the big market players were up to. But now, the Swiss central bank has effectively blindfolded investors.

Or put another way, yet again central bankers have acted to protect their own interests and harm the interests of ordinary punters.

Meddling like you’ve never seen before


But if the Swiss or any other banker thinks this is the way to calm markets and help the global economy, they’re sadly mistaken.

As Stuart Thomson, portfolio manager at Ignis Asset Management told Bloomberg News, “We will see a lot more intervention now, we will see manipulation on a grand scale.”

Or as our Slipstream Trader, Murray Dawes said this morning:

“We are now entering the next phase of this crisis where all-out currency wars have begun. A quick survey of past currency intervention shows that it often works in the short term but rarely works in the long term. Traders will have been shaken out of many positions and taken some bruising losses in the last couple of days.”

Boy, have they got that right.

Of course the Swiss aren’t the first to manipulate their currency. They’re simply joining a growing line.

The Japanese are regular money manipulators… Brazil introduced a tax on currency trading last year… And the U.S. Federal Reserve – even though its mandate doesn’t include managing the U.S. dollar – has manipulated the Greenback almost non-stop for the past three years.

But our guess is the Swiss intervention is unlikely to have the effect it hopes for.

On the one hand, sure, the SNB has said it will buy “unlimited quantities” of foreign exchange. That’s another way of saying it will print as many Swiss francs as it likes to weaken the currency.

But on the other, we’re not sure we believe the SNB will devalue its currency so much that it destroys the Swiss franc’s reputation as a haven currency.

The way we see it, the SNB’s intervention creates more, not less, uncertainty. Whereas in the past, the currency markets ebbed and flowed in an orderly fashion, now you’ll get a pressure cooker effect.

You won’t get to see the real value of the Swiss franc until so much pressure has built up that the whole thing explodes.

So our bet is… whether it’s next week, next month or next year… the Swiss franc’s 10% slump will be reversed in equally spectacular fashion.

But rather than the Swiss franc signalling bad news ahead of time, thanks to the meddling central bankers, it will only reveal its secrets when it’s too late to do anything about it.


Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...
Share this post on...

Kris Sayce
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the investment director for Australian Small-Cap Investigator, Diggers and Drillers and Revolutionary Tech Investor. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays. Read more about Publisher and Investment Director Kris Sayce.

Leave a Comment

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au

13 Comments For This Post

  1. DM Says:

    Why should we not have a single global, gold standard, currency? it would remove all this speculation – which doesn’t produce anything. International trade would be much simpler and individual countries could not merely “print money” when the spend too much.
    Of course an accountant or garbo in Sydney would be paid a different rate to the accountants and garbo’s in Mumbai, New York or Johannesburg but the local markets would be free to determine that.
    Seems a sensible solution to me but there’s too many vested interests for it to happen – not the least, the financial services sector.
    On a slightly different issue, I believe there is growing acceptance of “virtual currencies” from corporations – Microsoft etc. I don’t know much about it but might be worth someone with time and research skills investigating it.
    Here’s an interesting link on the US debt level.

  2. J.C. Says:

    Great stuff yet again. What scheming can the Japanese do now? To sabotage yen which defy all logic. Confiscate savings?

    Oh, and interesting comment from DM.

  3. JB Says:

    With the 10 year anniversary of 9/11 coming up, it would seem that the truth is sinking in with the masses … although still denied by the “mainstream”


  4. Peter Fraser Says:

    Well JB that proves that there is no shortage of idiots on the internet.

    I think that you are well acquainted with most of them. How is the mothership going? Is the Cryovac chamber still abuzz with excitement?

  5. SV Says:

    We cannot fault the SNB for that announcement. It has no obligations to investors piling into Swiss franc. And these investors are not your average Joes, they are international banks and hedge funds sloshing around cheap money they got from the Feb and ECB.
    Instead, the SNB has the mandate to maintain financial stability in the Swiss economy and this is exactly what it is trying to do.

  6. Drood Says:

    PF ……. The government could and should have stopped 9/11.
    The fact that they didn,t is further evidence of government incompetence not complicity.
    You are spot on with the rest of your post, hopefully the chamber is working perfectly and the mothership is going………..soon……..with standing room only.

  7. Peter Fraser Says:

    Yes drood agreed, Remember it was George Bush at the helm at the time. His incompetence was unlimited.

    Zero degrees Kelvin is what is needed for the chamber.
    Preserved forever – rock hard permanent statues.

  8. Drood Says:

    PF….but once they are inside…….mwahahahaha

  9. The Wolf Says:


    watching an alleged “smart” guy crumple under a simple question…and then resort to a personal slur…

  10. Peter Fraser Says:

    wolf – I don’t think he crumpled – Santelli is often idiotic. Calling social security a ponzi scheme is idiotic, regardless of whether you do or do not support social security.

    They have a problem in the US (and elsewhere) because they are underfunded, but that is a planning problem.

    Do you suggest that we completely drop all forms of social benefits?

  11. M&M Says:

    Peter – that’s Santelli’s point. SS is underfunded and was always under funded becasue it relied on new tax payers.

    Wouldn’t it be better if social security was funded as we go like super?

    That way (in theory) we wouldn’t have to rely on the kids.

    I understand it’s one big actuarial game – but are you saying it’s underfunded becasue the mathematics (actuarial) then really it is a ponsi scheme.

    Then we need more handouts to encourage child birth or more migration to help pay for SS.

    Am I kinda on the right track?

  12. Peter Fraser Says:

    M&M – I don’t think you will ever get to a point where social benefits are funded in advance, although some level of advance funding would certainly be an advantage.

    The labour force will certainly get hit hard when the boomers retire over the next decade or so, but the following generations are also about the same size if we work on a year by year basis, that is something that gets lost in most discussions because the boomer time span is larger than most generation time spans, people just look at the numbers.

    We could create a Sovereign fund with the extra tax income from the current mining boom, but my only issue with creating a sovereign fund to help cover future costs, is that at some future point, all the money put away by the toil and savings of one generation, will get spent on a “noble cause” that a later generation dreams up. In essence it is a good idea with much scope for misuse.

  13. M&M Says:

    Peter – Yes, a sovereign fund has merits and disadvantages.

    The problem with the USA’s Soc Security, is that it’s effectively taxed and spelt out for them from their pay…. So people think they’re funding their own benefits.

    The govenment then “invests” the money in itself (govt bonds) and then needs to pay benefits by cashing in it’s own government bonds…. relying in tax revenue to payout the bonds, to pay the benefits.

    Smoke and mirrors.

    Somehow we should ony be given what we can afford (which is what we earn). We shouldn’t rely on future generations.

GET THIS NEW REPORT : 5 Things You Can Do To Boost Your Retirement Pot

In this report we’ll give you strategies, tips and advice to help you kick-start, or revive your retirement savings right now.

PLUS you'll get Money Morning every weekday...absolutely free.

Enter your email address below and hit the 'Claim My Free Report' button now.

Privacy Statement
We will collect and handle your personal information in accordance with our Privacy Policy.
You can cancel your subscription at any time

Diggers and Drillers

A 3-Point Plan to Re-Engage with the Aussie Mining Boom

This new video reveals a way for Aussie share investors like you to RE-ENGAGE with the next phase of the mining boom…while valuations are still dirt-cheap…

The plan centres round three specific stocks.

To find out what they are, click here.

Australian Small-Cap Investigator

The Australian wildcatter
exploring oil's 'final frontier'

The US Geological Survey says this area contains up to 71 billion barrels of oil.

Only a few explorers have secured licences to drill.

One of them is a daring little Aussie firm that begins drilling 'in early 2014'.

According to small-cap analysts Tim Dohrmann it's impossible to speculate just how high this one could go. Find out why here.

World War D

Couldn’t make it to our
‘War Summit’?

Don’t sweat it. Click here for the next best thing…

World War D was the most important meeting of minds of the decade so far. What came out of it will almost certainly force you to reshape your investment plan for the rest of the decade. There's no way to go back in time and get inside the Savoy Ballroom of the Grand Hyatt.

But you can do the next best thing…
to find out what it is, click here.

  • ^NDX3487.853+13.22 - +0.38%
  • ^FTSE6541.61-42.15 - -0.64%
  • ^AORD5396.800+16.500 - +0.31%
  • ^AXJO5404.400+16.200 - +0.30%
  • AUDUSD=X0.9336
  • USDJPY=X102.055

Graphic Ad 1 – Blue Chip Stocks Report

Revolutionary Tech Investor

This report is about TECH MOON-SHOTS

Four of them, to be precise.

It's an early-days project. But one biotech aiming for the cancer moon-shot is already up - get this - 497.14% since tipped.

For four more tech moon-shots, click here.

Gowdie Family Wealth

The worst mistake you can make when handing wealth on to your kids

This brand new investor briefing shows you what your family’s in for if you don’t take care to leave your wealth to them in exactly the right way.

And it shows you precisely how to prevent infighting, recklessness and misunderstanding over money.

Read it here.

The Money For Life Letter

Holden. Toyota. Qantas. BUST

Do you really expect the share market to boom in times like these? That's why Nick Hubble says the best thing you can do right now is invest for safety and income.

This brand new video shows you how you can get predictable, reliable and rock solid cash flow no matter what happens in the wider economy.

You could lock in up to $20,000 a year - and that's just the start. See how here.

Sound Money. Sound Investments. [bullish prediction]

Greg Canavan's first bullish prediction in four years

Greg Canavan
doesn't make forecasts like this often.

When he does, it's because he’s found something that could make you money for years to come.

Read more here.

Is the Australian Housing Boom Really Back?

The Denning Report

2014 Predicted

Dan Denning accurately forecast 2013's flight from
bonds to stocks, the commodities crash and the
Aussie dollar top…to the exact week

In this brand new forecast report, he shares his
three critical predictions for 2014…

More Recommended Reading Below...

The Pursuit of Happiness & The Daily Reckoning

  • The Pursuit of Happiness
  • The Daily Reckoning Australia

Done properly, a retirement business can not only help fill a retiree’s time and replace their work [Read More...]

Free speech is no longer really a right at all. Governments, vested interests, and lobby groups are [Read More...]

Australian house prices are going to remain high. Perhaps finally, when the last baby boomer retires [Read More...]

Make sure that the changes you make to your financial plan are from a credible source. Otherwise the [Read More...]

It was day two of the World War D conference, and the final session was starting. We were closing th [Read More...]

In business, as in other things, we are being roughened up… and toughened up. We promised a grim acc [Read More...]

The worry is that the Russian and Ukrainian economies are suffering badly while politicians enjoy th [Read More...]

During good times, convertible notes behave like debt financing. But if there’s a bank crisis, the b [Read More...]

Pensions are going to balloon sooner or later as the baby boomer bulge retires. Raising the pension [Read More...]

Using the corporate policies of Porsche and the knowhow of the US Federal Reserve, the Australian Go [Read More...]


"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery