Tradervox (Dublin) – The debt crisis in Europe has had a tremendous effect on world currencies as governments and traders try to go through this without making losses. The crisis has led to the strengthening of the Swiss Franc against euro and SNB President Thomas Jordan is cautious on the effect it might have on the cap introduced to curb such strengthening. The week started with Swiss National Bank President indicating that the government is considering the capital controls as a possible measure to stop the country’s currency from advancing against the euro due to the debt crisis in the euro area.
The government and the central bank have constituted a panel that is focusing on instruments that can combat the franc strength and they are also looking at how secure the country’s economy will be in case the currency union collapses. Such remarks from the SNB officials show some possibilities of the crisis in Europe worsening and the central is keeping all its options on the table. The current risk aversion in the market has forced investors to pile into the franc hence the current efforts to curb franc gains. These measures are meant to protect the Swiss economy as a strong franc is not conducive to the country’s economy.
According to some analysts, SNB and government officials are preparing for the possibility of the euro currency union collapsing, however unlikely. Capital controls will be a good measure for the country especially if there is capital flight in Europe. In her statement in December, the Swiss Finance Minister Eveline Widmer-Schlumpf indicated that the task force would be tasked with the responsibility of investigating capital controls and negative interest rates. The franc has strengthened against the euro due to the current debt crisis that seems to be spreading in Europe. Further, election results in France and Greece triggered another wave of concerns in Europe which has led the euro to weaken considerably.
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