On January 15, 2015 at 10:30 a.m., the SNB removed the minimum rate of 1.20 francs for one euro. This unexpected decision caused an earthquake in the Swiss financial market and exports. Economic associations and unions then reacted in shock, warning of a recession after the sudden appreciation of the franc.
The SNB’s decision took economic players by surprise, even if most anticipated that the floor rate introduced in 2011 during the euro crisis (Grexit) would be difficult to defend. The billions of francs in foreign currency purchases made by the Swiss central bank in previous months had indeed been criticized.
The abrupt appreciation of the franc after the abolition notably slowed down export-oriented industrial companies in 2015 and 2016. In the machinery, metallurgy and electronics industries, thousands of jobs suffered from the “franc shock”, at least temporarily, according to economists.
However, the Swiss economy proved robust, benefiting from the diversified structure of its industry. Pharmaceuticals, for example, which are relatively little dependent on the exchange rate due to their unique products, have been less affected.
Wise decision
“Ten years later, the world has not collapsed,” says Karsten Junius, chief economist for Safra Sarasin. Against all expectations, the exchange rate shock did not catapult Switzerland into a recession either. After a quarter of negative growth in gross domestic product (GDP), the country demonstrated its adaptation by returning to growth.
According to Daniel Kalt, chief economist at banking giant UBS, Swiss companies have been flexible. Many companies have endured losses for quarters or even years, but over time they have learned to better manage currency fluctuations. Also, the repercussions on the labor market were much less than feared.
“The SNB’s decision was wise,” adds Mr. Junius. Under the leadership of its president at the time, Thomas Jordan, the central bank was right to act before its European counterpart, the ECB, began buying bonds. “At that point, it was clear that the floor rate could no longer be maintained. A later exit would have cost much more.”
Raiffeisen Switzerland’s chief economist, Fredy Hasenmeile, agrees. “The abolition of the minimum exchange rate was a very courageous and correct measure. The results speak for themselves. (…) A look at Germany shows what happens when an economy is no longer demanded by a weak currency.”
