BERLIN (MNI) – The elevated foreign exchange rate of the Swiss
franc is putting a big strain on the economy of Switzerland, Swiss
National Bank Governing Board member Jean-Pierre Danthine said Thursday.

In remarks prepared for delivery at a money market event in Geneva,
Danthine remarked that the strength of the Swiss franc is
currently on everyone’s mind.

“This summer it became a predicament of unprecedented dimensions
and it continues to put tremendous pressure on the Swiss economy,” the
central banker observed.

“Slow-moving economic fundamentals or macroeconomic drivers can
almost certainly not account for the sudden large movements of our
exchange rate in July and August,” Danthine said.

Rather, the Swiss franc’s safe-haven status and financial market
participants’ perceptions that the risks to the global economy are
extreme in size and uncommon in nature — and thus hard to evaluate —
offer a far more complete explanation, he reasoned.

“While the Swiss franc’s status as a so-called safe-haven currency
may be a testimony to the country’s long history of stability, in times
of global uncertainty on the financial markets, it is an essentially
financial phenomenon which may inflict significant and potentially
permanent damage upon the real economy,” the Governing Board member
warned.

Danthine noted that safe-haven flows “led to a profound
disconnect between the value of the Swiss franc and the reality of the
Swiss economy.” When financial forces push a currency so far away from
its fundamental value so quickly, “the consequences are very real.”

“After all, most businesses do not work with margins that can
absorb such extreme exchange rate fluctuations, in terms of both speed
and level,” Danthine said. “The Swiss economy is very open and dependent
on exports.”

Thus, “the massive overvaluation of our currency this summer
carried with it the risk of a recession and of deflationary
developments,” he said.

That is why the SNB announced on September 6 that it would no
longer tolerate a franc-euro rate below CHF1.20.

Yet, “even at a rate of CHF1.20 per euro, the Swiss franc remains
high,” the central banker argued. “If the economic outlook and
deflationary risks so require, further measures will be taken,” he said.

“Today, the Swiss franc remains high and should therefore continue
to depreciate in the future,” he asserted.

–Berlin bureau: +49-30-22 62 05 80; email: twidder@marketnews.com

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