SWITZERLAND’S CENTRAL BANK has come under fire at home and abroad after scrapping efforts to stop the overheated franc rising, throwing global markets into chaos and bankrupting several foreign exchange traders.
A brokerage firm in Britain and another in New Zealand declared insolvency, while exporters in Switzerland warned they too could be put out of business by the Swiss National Bank’s sudden decision.
Business Insider reports that UK-based foreign exchange broker Alpari announced it had entered insolvency.
“The recent move on the Swiss franc caused by the Swiss National Bank’s unexpected policy reversal of capping the Swiss franc against the euro has resulted in exceptional volatility and extreme lack of liquidity” a statement read.
This has resulted in the majority of clients sustaining losses which has exceeded their account equity. Where a client cannot cover this loss, it is passed on to us. This has forced Alpari (UK) Limited to confirm today, 16/01/15, that it has entered into insolvency.
That follows New Zealand’s Excel Markets, which made the same statement earlier, according to the Financial Times.
“From an economic standpoint, this move to un-peg the currency] is incomprehensible at the current time,” the Swiss Business Federation said, warning the country’s vital export and tourism industries would suffer.
Swiss newspaper Le Temps charged in an editorial that the central bank was “guilty of naivety” and questioned if it had forgotten the stabilising role it should play on the markets and the economy.
“Sinking the Swiss economy”
The SNB had “put its credibility at risk”, the newspaper said, while the Tribune de Geneve said the bank was “sinking the Swiss economy”.
A rout on Swiss stocks continued, with shares on the main SMI index tumbling 5.96% on Friday, a day after plunging% — the Swiss stock exchange’s steepest fall since 1988.
The SNB had caught markets off guard yesterday with its shock announcement that it was abandoning the minimum rate of 1.20 francs against the euro that it had been defending for more than three years.
The Swiss currency immediately gained nearly 30 percent against the euro, before stabilising at around parity — which is still 15 percent higher than Wednesday’s rate.
Swiss public broadcaster RTS calculated Friday that the new exchange rate meant the value of the central bank’s own massive foreign currency reserves had dropped by 60 billion francs overnight.
The boss of a small watchmaking company H. Moser & Cie underlined the impact of the SNB’s move in an open letter addressed to central bank chief Thomas Jordan, warning that he may have to move his business out of Switzerland.
“Over 95 percent of our watches are sold to people outside of Switzerland, and the first retailers called the same day to cancel orders,” Edouard Meylan wrote.
“In fact, one thought crossed my mind: why not just move two kilometres into Germany and continue business as usual in the EU?,” wrote Meylan, whose company employs 55 people.
- © AFP, 2015, additional reporting by Business Insider
To embed this post, copy the code below on your site
have your say