Franc peg irks Norway and Canada
Switzerland's moves this week to stem the rise of the franc were criticized on Thursday by Norwegian and Canadian officials concerned about the impact of the franc-euro peg on global currency markets.
Investors poured into other currencies belonging to economies considered financially solid, with Norway among the top destinations, the Wall Street Journal (WSJ) reported.
Norwegians were greeted on Wednesday by the strongest krone in eight years.
The decision by the SNB to set a minimum price for the franc at €1.20 on Tuesday was seen as an act of desperation by investors who began to buy Norwegian kroner that afternoon.
The franc fell instantly by 7.7 percent to arrive at that minimum, while the euro slumped further against the Norwegian currency.
Norway’s central bank governor Oystein Olsen is considering cutting interest rates to slow down the flow of money into the Norwegian krone.
“A swift policy response – likely lower interest rates – is in the offing if the krone keeps rising,“ Olsen told the Wall Street Journal, warning investors that a burgeoning krone would hamper the Norwegian economy.
Norges Bank, Norway’s central bank, stated that liquidity in the krone was too low for it to be considered a haven, while dismissing speculation that it would follow Zurich’s lead and intervene to weaken its currency.
“We have a policy based on not intervening. That remains,“ Olsen told the Financial Times on Wednesday.
Canadian Finance Minister Jim Flaherty on Thursday told the WSJ he is “concerned“ about Switzerland’s move into foreign exchange markets, which he believes could spark currency wars where countries compete for low exchange rates for their own currency.
Flaherty said he would raise the matter at Friday's Group of Seven (G7) meeting of finance ministers in Marseille, France.
The Swiss National Bank surprised markets on Tuesday by placing a floor on the euro's value against the Swiss franc to deal with vast rises in the value of the traditional safe-haven franc amid financial turmoil.
The central bank vowed to do everything possible, including buying "unlimited quantities" of foreign currency, to prevent the franc from rising.
The Swiss franc had risen strongly in response to the eurozone debt crisis, hitting Swiss exporters and the tourism industry hard.
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