4 ms·

They do this because to peg the currency to the Euro meant they had to buy an unlimited amount of foreign currency to make up for it, which gets very expensive

by tribaal 12y ago

They do this because to peg the currency to the Euro meant they had to buy an unlimited amount of foreign currency to make up for it, which gets very expensive in the long run. What this means in layman's terms (I'll do my best): - If you are paid in Swiss Francs, your purchasing power in the Euro zone is stronger (since the prices you see will in effect be smaller to you). - If you are paid in Swiss Francs and shop in Switzerland, the foreign products you buy will slowly become cheaper (although companies will try to keep the label price of goods "the same" in Switzerland, and pocket the difference). It will not have a direct impact on 100% Swiss products, however. - If you are paid in Euros, visiting Switzerland and buying Swiss products just became more expensive. - The Swiss firms exporting products might get hit, since their products are now more expensive to foreigners (that was the original point of pegging the CHF to the EUR in the first place - so they could export more). - As others pointed out: the Swiss firms importing goods will have cheaper raw materials, too, so the price of some Swiss products should decrease as well (modulo some companies trying to pocket the difference by keeping the same face cost, again). I'm sure I miss a few obvious points, but these changes of value affect such a wide range of things it's hard to think of everything :) EDIT: Formatting and one omission :) EDIT2: Added import of raw materials on the list. Thanks guys!

runeks 12y ago
You're missing at least one additional point :) - The Swiss firms importing products will save money on imports, enabling them to either lower the prices of their products, increasing company profits (which increases investor profits), or both That's the inverse or your "The Swiss firms exporting ..." point. With every price move, including prices moves in the foreign exchange market, there is a winner and a loser. The seller of the good with the increased price (in this case CHF) realizes a gain, and the seller of the good that decreased in price (EUR) takes the loss. Swiss companies sell CHF, which just means they buy goods (concrete, steel, wheat, land, labor, etc.) with CHF. Euro-area companies sell EUR, which means they buy goods with EUR.
- deleted 12y ago
  [deleted]
skylan_q 12y ago
- The Swiss firms exporting products might get hit, since their products are now more expensive to foreigners (that was the original point of pegging the CHF to the EUR in the first place - so they could export more). - The Swiss firms importing products will get a benefit of being able to import for cheaper. This goes for consumer goods as well as raw materials.
- raverbashing 12y ago
  "The Swiss firms importing products will get a benefit of being able to import for cheaper." Yeah, I'm sure the materials are a huge part of the cost of a Rolex... As Swiss products have a high aggregated value, I believe this is a small change in cost for most factories. Now for things like imported items directly sold to consumers this might have a bigger impact
  - tribaal 12y ago
    Maybe not for a rolex, but certainly for chocolate for example (cocoa doesn't grow in Switzerland). Pharmaceuticals as well, probably. EDIT: s/coca/cocoa/ ;) EDIT2: My post is bullshit, most of the exports are actually watches and electrical/mechanical appliances, so parent is spot on. TIL.
ddeck 12y ago
>They do this because to peg the currency to the Euro meant they had to buy an unlimited amount of foreign currency to make up for it, which gets very expensive in the long run. It's the reverse situation that is typically unsustainable from an expense perspective (as the Central Bank of Russia has been dealing with). To prevent the CHF appreciating, the SNB creates the CHF it uses to buy EUR to defend the peg. There is no theoretical limit on the amount of CHF they can create in this process as they are creating new money. The key issues are that: 1) The CHF has depreciated significantly on a trade weighted basis since the peg is only against the EUR (which has depreciated substantially against the USD). 2) The monetary base has reached 60% of GDP as a result of the high demand of CHF at the artificially low price (and getting lower given continuing EUR depreciation) and continues to grow. There is much speculation, but most market professionals agree that the timing is due to the expected imminent QE by the ECB and the likely implications for the above two factors.
- tribaal 12y ago
  Very interesting, thank you for the insight!
fla 12y ago
And if you are paid in Swiss Francs and live in France (like some of my colleague) You pop the champagne !

by tribaal 12y ago

runeks 12y ago

You're missing at least one additional point :) - The Swiss firms importing products will save money on imports, enabling them to either lower the prices of their products, increasing company profits (which increases investor profits), or both That's the inverse or your "The Swiss firms exporting ..." point. With every price move, including prices moves in the foreign exchange market, there is a winner and a loser. The seller of the good with the increased price (in this case CHF) realizes a gain, and the seller of the good that decreased in price (EUR) takes the loss. Swiss companies sell CHF, which just means they buy goods (concrete, steel, wheat, land, labor, etc.) with CHF. Euro-area companies sell EUR, which means they buy goods with EUR.

deleted 12y ago
[deleted]

skylan_q 12y ago

- The Swiss firms exporting products might get hit, since their products are now more expensive to foreigners (that was the original point of pegging the CHF to the EUR in the first place - so they could export more). - The Swiss firms importing products will get a benefit of being able to import for cheaper. This goes for consumer goods as well as raw materials.

raverbashing 12y ago
"The Swiss firms importing products will get a benefit of being able to import for cheaper." Yeah, I'm sure the materials are a huge part of the cost of a Rolex... As Swiss products have a high aggregated value, I believe this is a small change in cost for most factories. Now for things like imported items directly sold to consumers this might have a bigger impact
- tribaal 12y ago
  Maybe not for a rolex, but certainly for chocolate for example (cocoa doesn't grow in Switzerland). Pharmaceuticals as well, probably. EDIT: s/coca/cocoa/ ;) EDIT2: My post is bullshit, most of the exports are actually watches and electrical/mechanical appliances, so parent is spot on. TIL.

ddeck 12y ago

>They do this because to peg the currency to the Euro meant they had to buy an unlimited amount of foreign currency to make up for it, which gets very expensive in the long run. It's the reverse situation that is typically unsustainable from an expense perspective (as the Central Bank of Russia has been dealing with). To prevent the CHF appreciating, the SNB creates the CHF it uses to buy EUR to defend the peg. There is no theoretical limit on the amount of CHF they can create in this process as they are creating new money. The key issues are that: 1) The CHF has depreciated significantly on a trade weighted basis since the peg is only against the EUR (which has depreciated substantially against the USD). 2) The monetary base has reached 60% of GDP as a result of the high demand of CHF at the artificially low price (and getting lower given continuing EUR depreciation) and continues to grow. There is much speculation, but most market professionals agree that the timing is due to the expected imminent QE by the ECB and the likely implications for the above two factors.

tribaal 12y ago
Very interesting, thank you for the insight!

fla 12y ago

And if you are paid in Swiss Francs and live in France (like some of my colleague) You pop the champagne !