EC Zurich Turns The Euro Into Swiss Cheese

But What will Happen to Switzerland?

Econintersect:  The Swiss National Bank shocked financial markets on Thursday by scrapping a three-year-old cap on the franc, sending the currency soaring against the euro. Reuters said "stocks were plunging on fears for the export-reliant Swiss economy. Michael Haltman at GEI News (Switzerland Goes Further into Never-Never Land) had quotes from Clare O'Dea at SWI describing in detail how manufacturing, exporting and tourism in Switzerland would be hurt, but also pointing out that retail prices for the many imported products in Switzerland would be coming down.

swiss-franc-1000

Trade Summary for Switzerland

The Swiss have a relatively small balance of trade compared to the U.S., Germany and China, with latest data showing a trade surplus of nearly 4 CHF billion for the last month reported, November 2014.  This had been driven up from the 5-year average around 2 CHF billion by the weakening euro and the franc peg to that currency.  The trade surplus for Switzerland at 2 billion CHF is (+) 0.4% of total trade value (exports plus imports).  The corresponding number for the U.S. is (-) 9-10% and for Germany about (+) 10%.

swiss-bal-of-trade-2015-jan-16

The countries that Switzerland trades with and the products traded are shown in the following graphics.  Go to their source, The Observatory of Economic Complexityfor interactive graphics that show the data behind every tile by pointing with your cursor.

swiss-exports-countriesswiss-exports-key

 

swiss-imports-countriesswiss-imports-key

 

swiss-exports-products

 

swiss-imports-products

With the change of the exchange rate for CHF to the U.S. dollar changing by 15% (1.02 CHF for 1 $ to 0.87 CHF, the cost of Switzerland's most recent annual oil and petroleum products imports which cost about 13.76 CHF billion would have been a little less than 12 CHK billion.  So there are some positives in the revaluation impacting the balance of trade.

Shaking up Forex

Primary effects (exchange with the Swiss franc) were generally large.  Some examples:  The U.S. dollar dropped about 15% against the franc, the euro about 16.7% and the yen about 12%.  Rates have bounced around after the initial reaction as shown in the following  charts.

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John Lounsbury 6 years ago Author's comment

I have updated the original article to include the comments below. econintersect.com/.../zurich-turns-euro-into-swiss-cheese

Dick Kaplan 6 years ago Member's comment

Great read, thanks.

John Lounsbury 6 years ago Author's comment

Thanks for you comments, Moon and Jack.

@Wall Street Jack: You point out a significant omission from my article - I discussed only macro issues and did not mention the micro turmoil as several broker firms in the forex space were wiped out because they were not hedged against the vicious swing in the Swiss franc and related large ripples in other currencies.

I am seeing lots of articles, from bloggers, financial pros and academics warning of potential for major economic damage from this action. It has been compared to the Lehman collapse and the Nixon killing of the remnants of the gold standard. I don't see that type of contagion. You can (and I know Moon will) point out my foolishness if I turn out to be wrong in this assessment. :-)

Moon Kil Woong 6 years ago Contributor's comment

LOL the Swiss didn't turn the Euro into Swiss Cheese. The Euro nations did and the Swiss just decided not to join the bloodletting and thus called it for what it is, rubbish. The Euro is weak enough as is. If you add QE problems to it then you are talking about a currency with Socialist bankruptcy problems and mixing it with Japan style accounting games going on as well. Thus you will have a failing economy with bankrupt parts and combining it with QE stagnation that kills growth. It's like mixing a zombie with a disease that causes suicidal insanity and disables growth and self preservation. There is no hope of escaping such a state and the Swiss are right, get as far away as possible.

Wall Street Jack 6 years ago Member's comment

One of the biggest one day FX moves ever. Insane. A lot of people just went broke.