The Swiss Franc (CHF) is trading sharply lower today against the dollar on news that the Swiss National Bank is considering a “temporary” peg of the currency against the Euro. However, the move shouldn’t be too surprising to the market as the SNB has been trying to manage the CHF/EUR exchange rate aggressively for the past several years.
These aggressive actions have had a significant effect on the SNB’s balance sheet and, by extension, the assets which back the CHF. Today, a large portion of the assets which back the CHF are EUR denominated, indicating that a “soft” peg has been in effect for some time. (After all, a currency peg is executed by a central bank standing willing to purchase foreign currency in exchange for local at a fixed rate.)
Since 2009, the SNB has been heavily buying EUR in order to manage the exchange rate. Foreign currency reserves now represent nearly 80% of the SNB’s balance sheet: