Good news is that the QE the ECB will carry out -the reason behind the SNB'S decision- will lead to cheaper holidays for Brits going to the euro zone. Sterling already at 1.30 against the Euro.
The weak state of the euro really meant that the SNB had no other option.
A good summary:
1. For years the Swiss have pegged their currency to the Euro. This provides transactional ease for their own economy in dealing with the eurozone, which is their biggest trading partner. First of all, everyone has a rough idea of what the exchange rate will be next year. A related point is that if the eurozone weakens, the CHF won't appreciate to levels that will make their exports uncompetitive.
2. However, as the eurozone has weakened, it's become harder to maintain the peg. People across Europe have been wanting to shift currency out of euros and into CHFs, looking for a safe haven. The more Euros are exchanged for CHFs, the more the value of the Euro naturally drops against the CHF.
3. This means that in order to maintain the 'peg' (the permitted range within which the CHF is permitted to appreciate or depreciate against the Euro), the Swiss National Bank has had to intervene in order to prevent the value of the CHF spiralling upwards. Typically they do this by printing more CHFs, the theory being that the more there are of them circulating, the less the exchange value of each CHF.
4. This keeps the currency lower, but unfortunately it also leads to all sorts of unpleasant consequences for the Swiss economy. Apparently the number of CHFs in circulation has increased from 80bn in 2011 to 400 bn today. They all have to go somewhere, and unfortunately a lot of them have been loaned out, leading to a spike in asset prices and large scale indebtedness throughout the economy.
5. The final straw seems to have been concerns that the ECB is about to go for full-scale QE in the very near future. If that happens, the value of the euro will tank even further, thus forcing the SNB to print CHFs at an ever greater rate. I daresay that even now the prospect of QE is probably accelerating Euro-CHF capital flight, so even though at the moment it hasn't happened yet (and perhaps still might not) it's still causing a great deal of current pressure.
The SNB seems to have calculated that the risks to the economy of continuing to print CHFs in ever increasing numbers are now outweighing the danger of a loss of competitiveness which will result from a higher currency value.
At the point that they've reached that decision they really have very little option but to act immediately, even though it's caught everyone on the hop. If they had announced that they were going to be abandoning the peg on a specified date in the future then in the interim the doors would have been beaten down by desperate to exchange Euros for CHFs at the artificially cheap peg rate that would have to be effectively subsidised by the Swiss nation printing truly vast numbers of CHFs.
There are always winners and losers to this sort of thing. The losers are invariably outratged, and I guess it's very easy to portray this sort of thing as central bank bungling. I'm sure there are things the SNB could have done better. But ultimately this seems to have been caused by eurozone weakness.
