THE NITTY - GRITTY ABOUT THE EURCHF FLOOR

Due to the recent discussion about the EURCHF  peg, I  would like to share a few things about the currency  :

·         SNB is using a floor  for  a second time in its history. The first one was introduced on 01/10/1978  (DEM/CHF floor at  0.80 CHF)

·         In addition to  the first  floor , SNB had also  introduced administrative measures(e.g ban  of paying interest to foreign deposits)  to address the  strong currency 

·         The peg  lasted  3 years .  In 1981 the Central  bank  abandoned the peg to curb inflation. None the less  currency  never  broke the floor.

·         In  September  2012  the Swiss Central Bank introduced again the  floor  to 1.20 to  curb the  pressure on CHF due to  European crisis

·         SNB has repeatedly  stated  that will “defend this cap  with utmost determination and stands ready  to buy  unlimited amounts of foreign currency “

So what  can make the SNB to abandon the floor? The only  reason is  Inflation .  SNB will be forced  to abandon the floor in case inflation start rising. 

Are we there yet  ?  Not even by  a long shot as it  can be seen in the graph   below .