The Swiss Central Bank (SNB) shook up the European markets last Thursday when it announced that it would remove restrictions on on the Swiss Franc in relation to the Euro. For any of those that are unaware, the Euro is the uniform currency that is accepted and traded throughout most of Europe, similar to the Dollar in the United States. Some countries still use their own currency, but the Euro is mostly used in regards to trading commodities. Yet, the SNB decided to allow the Swiss Franc to rise in value, reducing the power of the Euro. This caused a miniature financial scare as many other European central banks saw their stocks fell, while companies who traded in the Euro earning losses as the Euro grew weaker. It would be accurate to say that the global financial market was certainly surprised by the actions of the SNB.
On the other hand, this action by the SNB does have the possibility to result in financial and political ramifications for Switzerland as well. Many central banks throughout Europe are now reluctant to trust the Swiss. The current mistrust between the European countries has the potential to cause a significant impact on Switzerland’s own economy, which is driven by ability to draw capital. In simple terms, if the Swiss banks are unable to convince its neighboring countries and the world that they can still be trusted in matters of banking, Switzerland could suffer a recession. Consequently, many monetary experts are lambasting Switzerland for allowing such a decision to be enacted as it wouldn’t serve to substantially benefit Switzerland or anybody else.
In effect, by allowing the Swiss Franc to increase in value against the Euro, the Swiss have brought financial uncertainty upon many of Europe’s most powerful economies. This has undoubtedly led to a financial impasse between the economic powerhouses of Europe and Switzerland. While Switzerland defends its decision as a maneuver to protect itself from economic anomalies, the majority of Europe and the world are criticizing them for allowing the Swiss Franc to cause chaos throughout Europe. We can only wait for a solution to be found to this problem and hope that it won’t affect the world economy in a major way.