Swiss franc cap must move in 2-3 years, ex-govt economist says

GENEVA Sat Dec 22, 2012 3:32pm EST

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GENEVA Dec 22 (Reuters) - Switzerland's policy of capping the value of the franc at 1.20 to the euro will have to come to an end in the next two or three years, a former top government economist was quoted as saying in a newspaper interview on Saturday.

The change could come about in one of two ways, Aymo Brunetti, a University of Berne professor who was until February this year the head of the government's economics secretariat (SECO), told the Tages-Anzeiger newspaper.

Ideally, he said, the need for a cap on the franc would dissolve as the euro crisis is resolved, and the Swiss National Bank no longer has to hold down the value of the currency.

"However, this is the fair weather scenario. More realistic is a slower exit, as the cap is gradually reduced," he said.

An alternative to abolishing the cap would be to peg the franc against a basket of currencies.

"In that case you could remove yourself slowly from the 1.20 exchange rate," he said.

But he said that moving away from the cap would be a big challenge and it was still too early to do so.

The cap was imposed in September 2011 when the real exchange rate should have been 1.30-1.40 to the euro but inflation in the eurozone means the cap is now closer to the true value, he said.

"This also means that in the next two to three years we will have to exit the cap."

(Reporting by Tom Miles; Editing by Stephen Powell)

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