NEW YORK (InsideBitcoins) — In a move that has shocked markets around the world, the Swiss National Bank has decided to remove its policy of capping its currency’s exchange rate at 1.20 francs per euro. The decision from the central bank ignited a move well over euro parity for the franc, as it peaked around 1.15 francs per euro. This was a nearly 30% rise from where the franc opened the day against the euro. The Swiss franc is currently enjoying a gain of over 15% against all of its major counterparts for the day at the time of this writing.
The story of the currency cap
It was in September of 2011 when the Swiss National Bank first shocked markets with the announcement of their proposed currency cap. The move was part of the ongoing currency wars, with a goal of preventing a recession. Like many other central banks around the world, the SNB was mainly concerned with not allowing their currency to become a safe haven during a time of slow economic growth.
Yesterday: "Too bad #bitcoin doesn't have central bank to help stabilize value" – WaPo Today: SNB decision causes 25% surge for Swiss franc
— Kyle Torpey (@kyletorpey) January 15, 2015
The original move to enact the cap in 2011 led to a quick 8% drop in the franc against other major currencies, and today’s removal of the cap has sent the franc soaring in the opposite direction.
Interest rate cut
In addition to removing the cap on the franc’s rate of exchange with the euro, the Swiss National Bank has also dropped interest rates for certain types of deposits at the central bank to -0.75%. The central bank’s main interest target has also been moved to between -0.25 and -1.25%. Negative interest rates had already been in place in Switzerland since December, and this will increase the costs of holding cash deposits for investors.
Bitcoin spikes with gold
While the Swiss franc has had quite a volatile Thursday, it doesn’t look too unstable in comparison to bitcoin’s recent price swings. The digital currency is already down 30% on the year, which follows the long, painful decline in price over the course of 2014.
Both gold and bitcoin spiked on the news coming out of the Swiss National Bank, which follows a trend of bitcoin tracking gold during certain events in global markets. Although bitcoin has followed gold’s lead in the past, it is uncertain how the digital currency would act in a true economic crisis.
Bitcoin rose 8% on the news, while gold was up roughly 2.5% to over $1260. It seems that bitcoin has found a bottom near the $175 to $200 range for now, but the cryptocurrency has proven to be rather unpredictable since the start of the new year.
While bitcoin has dealt with its own issues as a speculation over the past year, this move from the Swiss National Bank shows that fiat currencies can also have their own unexpected swings in price.
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