Paul Krugman: When Greece entered its debt crisis at the end of 2009, money seeking a safe haven began pouring into Switzerland. This sent the Swiss franc soaring, with devastating effects on the competitiveness of Swiss manufacturing, threatening to push Switzerland into Japanese-style deflation. So Swiss monetary officials [tried] to weaken their currency — [but] just printing money and stuffing it into the banks does nothing; it just sits there. The Swiss tried selling francs and buying euros on the foreign exchange market, in the process acquiring [many] euros. Even that wasn’t doing the trick. Then, in 2011, the Swiss National Bank [declared that] the overvaluation of the Swiss franc,“poses an acute threat to the Swiss economy and carries the risk of a deflationary development.” It would set a minimum value for the euro and that it was “prepared to buy foreign currency in unlimited quantities.” The bank clearly hoped it would limit the number of euros it actually had to buy. And for three years it worked — [until] Thursday, [when] the Swiss suddenly gave up.The official explanation [was] that it’s a response to a weakening euro — [but it] seems likely that a fresh wave of safe-haven money was making the effort to keep the franc down too expensive.
Posted on: Fri, 16 Jan 2015 09:29:26 +0000
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