Effects of the Swiss Franc’s Soaring

The National Bank of Switzerland has dropped the cap on the Swiss Francs value against the Euro, which it has maintained in the past few years. In Romania, 150 thousand people with loans in Swiss Francs are affected by this decision.

Mihai Pelin, 16.01.2015, 13:39

More than eight years ago, when crediting was blooming, some Romanians chose to get loans in Swiss Francs, due to the stability of that currency back then and the lower interest rates as compared to the Euro or the US dollar. Over 150 thousand people in Romania are now looking in despair at the growing exchange rates displayed by commercial banks.

On Thursday, as a result of one of the most dramatic moves in the stock exchange history, the Swiss Central Bank dropped the cap on the Swiss Franc’s value against the Euro. The Bank has explained that the cap was no longer necessary, given the depreciation of the Euro. Following the elimination of the ceiling of 1.20 Francs per Euro, the Swiss currency reached unexpected highs. The decision had the Swiss franc soar as much as 30% as against the Euro and shook all Central and East-European banks.

After this turmoil, as brokers described the move, the Swiss franc dropped a bit and on Friday, on Asian markets, the Swiss franc — Euro ratio was almost 1 to 1, but still notably higher than in the previous years. The volatility of the Swiss Franc will by no means render stable the banking system in Romania, financial analysts say. In their opinion, the substantial appreciation of the Swiss currency will trigger a serious social problem, and the National Bank of Romania is responsible for this situation, which must be solved through a legislative act.

The situation is worrying for those who borrowed Swiss francs, but not at all worrying for the Romanian Central Bank, because, all in all, the loans in that currency do not exceed 5%, said the Central Bank Adviser Adrian Vasilescu: “ They will pay more, that’s the reality and it is regrettable that they are faced with this situation, but I must say that for many years the National Bank has warned that it is better for those who take out loans to take them in the currency that they are paid in.”

The Swiss Bank’s decision has had global effects. The German government bond yields have reached record lows and the value of the Japanese Yen and of gold has gone up. The decision was also ‘a bit surprising’ to the IMF General Director Christine Lagarde, who has stated that in the future we will see more volatility of capital flows and of exchange rates as some central banks are interested in policies that follow different directions. Europe, with the exception of Great Britain, is still fragile and more solid structural reforms are going to be absolutely needed, Lagarde has also said.