Not getting enough attention in dispatches on currency market developments is the incredibly distorting impact represented by the unlimited purchases of foreign exchange being undertaken by the SNB. Last month, the stockpile of FX reserves at the SNB jumped by more than 11% to CHF 406.5bn, more than 70% of Swiss GDP. Over the past year, reserves have more than doubled; since early 2009 they have risen nearly ten-fold.
This explosive growth in reserves has aided all of the major currencies - including the euro - which would no doubt be much lower without the buying power of the SNB. The SNB has also bestowed its largesse on other majors such as the dollar, the Japanese yen (much to the chagrin of the MoF), the CAD, the pound and now the Aussie. Within Switzerland, it is worth noting that the economy is still experiencing deflation despite an abundance of liquidity, in part because the expensive exchange rate acts as an impediment to imported inflation.