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Floating Regime: Myth or Reality?

As you might be aware, The Swiss National Bank decided yesterday 06/09/2011 to peg the Swiss franc against the Euro (CHF 1.20 per Euro) in an attempt to weaken its currency and protect its economy. The SNB has also pledged to buy foreign currencies to force down the value of the Swiss franc and has warned that it would no longer allow 1 CHF to be worth more than € 0.83.

For me, this implies a high level of intervention into markets and thus raises a lot of questions: with American, China, and now Switzerland setting fixed values for their currencies by strictly monitoring it, are we still within the floating regime where market forces were supposed to determine currency values? We know that even in normal circumstances, Central Bank normally intervenes to stabilise its currency; but to this extent? Having a goal of a fixed rate set by a central bank?  Are we about to witness a currency war as Japan also recently revealed their plan of selling the yen and pledge to inject liquidity? Should we therefore rename the “floating regime” to a “managed float regime”?

To be continued …

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September 7, 2011 Posted by | Articles In English, Economics, International Economics, International Finance | , , , , , , , , , , , , | Leave a comment