Jan 10, 2012

The Price of Credibility or Why Hildebrand Quit

The head of the Swiss National Bank Philipp Hildebrand quit his post over a USD 500,000 currency trade executed by his wife without his knowledge (see Bloomberg article). She sold CHF and bought USD just before the SNB floored the EURCHF rate at 1.20 thus profiting around  USD 50,000. It is quite clear that the trade was executed without his knowledge. Still the ethical question would have remained and could have endangered the central bank's credibility which is its most valuable asset. With credibility weakened, the Euro peg may have come under pressure by speculators and a good policy may have been ruined. The Swiss economy needs the reprieve from a constantly appreciating currency and so the objective was worthwhile. (Incidentally Japan could also benefit from a similar exchange rate regime - for that refer to a previous WhatIf post.)

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