Showdown at Bern Gulch

by on September 8, 2011 at 10:53 pm in Current Affairs | Permalink

Hedge funds are considering ways to mount a counterattack against the Swiss National Bank, whose attempt to wrest control of the surging franc caught investors off-guard…

“People don’t know what to do with the Swiss franc right now, but the general consensus is that a central bank acting on its own will have a difficult time,” Mr. DiRusso said. “It’s going to take some time for the market to get on it, but there is definitely going to have to be a defense” of the 1.20 level, he said.

Here is more, hat tip to Dave O.

1 Stephen September 9, 2011 at 1:44 am

“Nice country you’ve got here; pity if something were to happen to it.”

These funds are mobsters.

2 Ritwik September 9, 2011 at 5:38 am

Isn’t it much easier for a central bank to set a ceiling than to set a floor? This defence shouldn’t be that hard.

3 Torben September 9, 2011 at 5:51 am

They can pretty much hold the ceilling as long as they wish – the question is rather what’s going to happen to Switzerland if they do.

4 Matt Waters September 9, 2011 at 6:42 am

I still don’t get the thinking that central banks can somehow be ineffectual in depreciating their own currency. Unlike these hedge funds with limited resources, central banks have no structural limitation in setting the price for their currency.

The only limitation is political. For example, Soros beat the Bank of England not because he had more resources but because the BOE did not have the political will to stay within the exchange rate mechanism during a recession.

It’s hard to see a similar issue for the Swiss bank in depreciating, rather than appreciating, their currency. The real value of the franc is going up due to a flight to safety, not due to any real worry that Trichet will suddenly become too loose. Unless the ECB dramatically changes policy to inflate away PIIGS debt, the Swiss people will be better to not see their currency appreciate in a flight to safety. Unlike the BOE in 1990, the hedge funds will lose on this bet against the bank’s credibility.

5 k September 11, 2011 at 1:02 am

BOE ran out of resources. it cost them £27b to defend the exchange rate.

6 john haskell September 9, 2011 at 6:53 am

Torben – what will happen to China if they hold the RMB at 6.15/USD? What will happen to Russia if they hold the ruble at 29/$? Oh what will we do, what will we do?!

7 Ted Craig September 9, 2011 at 7:18 am

It seems really wrong to me that countries like Switzerland and Sweden suffer for the sins of Italy and Greece.

8 mw September 9, 2011 at 10:21 am


9 Guy in the Veal Calf Office September 9, 2011 at 12:29 pm

Seems like the Swiss Central Bank has all the tools, but does it have the competitive desire, the heart, the intangibles? Is it going to be JeMarcus Russell or Drew Brees?

10 Guy in the Veal Calf Office September 9, 2011 at 12:33 pm

SNB: “I know what you’re thinking. ‘Will he print fifty billion francs or only five?” Well, to tell you the truth, in all this excitement I kind of lost track myself. But being as this is a .44 Magnum, the most powerful printing press in Europe, and would blow your balance sheets clean off, you’ve got to ask yourself one question: Do I feel lucky? Well, do ya, punk? “

11 spotcash September 11, 2011 at 6:06 pm

Is the Swiss national Bank also going to defend Swissy against all the other freely traded currencies. After all, if I can’t sell Euro-Swiss, I can sell Europ – USD and then sell USD – Swiss. Transactions costs might (?) be a tad higher but the result will be the same. OK, so I defend USD – Swiss. The n the trade can do Sterling – Swiss top the same effect of JPY – Swiss too. Where does one stop.

This probably is just an attempt to talk the markets into line rather than an announcement of a concrete policy. If a central bank has to do something, it can freeze all currency movements. But I reckon that wouldn’t work either

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