The Swiss National Bank has unexpectedly scrapped its cap on the franc, sending the safe-haven currency crashing through the 1.20 per euro limit it set more than three years ago. As David Pollard reports, the franc soared by almost 30 percent in value against the euro after the announcement.
The Swiss National Bank. Not usually known for drama. But it blew the sock off markets with a policy announcement - and $100 billion dollars off the value of Swiss shares - over 10 per cent of their value. While adding around a third to the value of its currency against the euro. That was the first reaction to a shock decision to drop the euro cap on the Swiss franc. In what's already been dubbed 'francogeddon', the bank also cut rates on certain deposits by half a per cent - to minus 0.75. On the news, many locals - including French workers in Geneva - rushed to local bureaux de change. (SOUNDBITE) (French) FRENCH MAN WORKING IN SWITZERLAND, ALEXANDRE SAYING: "For me, it's good news. It gives me more euros for the same amount of Swiss Francs. But then, where will it go from here? Where will we go? What will the consequences be?" But the bank's moves are dangerous, according to some economists. James Bevan is chief investment officer of CCLA. SOUNDBITE (English) JAMES BEVAN, CHIEF INVESTMENT OFFICER, CCLA, SAYING: "They said very firmly just a month ago that they were committed to defending current levels and that the negative interest rates strategy was part of a longer-term, deeply considered move. Therefore, what they have done today makes no sense." Like its chocolate-box scenery, the iconic Swiss franc has been a massive earner. And that's been the problem. Safe haven flights driving it to levels where vital exports hurt. The cap against the euro was set to prevent that, but the crisis in Russia and a deflating euro zone have piled on more pressure. And only last month, the SNB put negative rates on some deposits for the first time since the 70s to repel currency flows. But its interventions to maintain the cap were expensive. And an accidental break of the cap might have cost its credibility too. The possibility of QE from the ECB was also seen as a factor in the decision. And the Swissie's recent moves against the dollar definitely were, according to SNB Chairman, Thomas Jordan. SOUNDBITE (German) SWISS NATIONAL BANK (SNB) CHAIRMAN, THOMAS JORDAN, SAYING: "The euro distinctly lost value against the U.S. dollar which is why the Swiss franc also lost value against the U.S. dollar. In light of this, the Swiss National Bank decided that it doesn't make sense to carry on with a policy that is not sustainable.'' Exporters aren't happy - Swiss watch boss Nick Hayek calling the decision a 'tsunami'. While after the announcement, initial trading in the franc was said to be chaotic. One analyst said the 'panic' situation's likely to continue unless the bank comes up with a new plan.