Why did Switzerland ditch their currency cap?

  • Because ECB is about to embark on QE (a massive bond buying program) which will send euro interest rates lower and create an increase in demand for Swiss francs (as they will pay relatively higher interest).
  • So there would be big upward pressure on the franc, which, if the currency cap remained in place, the Swiss central bank would have to neutralise by meeting that demand (i.e. buying euros and selling francs).
  • It could eventually start running out of francs, and therefore be forced to abandon the peg anyway.

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