2015 Swiss Franc Unpegging Shock

The Swiss franc shock was the most violent currency move against a developed market in the floating-rate era. Since September 2011, the Swiss National Bank had maintained a minimum exchange rate of 1.20 francs per euro, pledging to buy unlimited quantities of foreign currency to prevent the franc from strengthening. The floor was intended to prevent deflationary spiral as safe-haven flows pushed the franc higher during the European debt crisis. By early 2015, the SNB's foreign reserves had grown to 77% of Swiss GDP. ECB was signaling imminent QE that would pressure the floor further. On Thursday January 15, 2015 at 10:30 AM Zurich time, the SNB announced it was abandoning the 1.20 floor and simultaneously cutting its deposit rate to -0.75%. The announcement was completely unsignaled, days earlier, the SNB had reaffirmed commitment to the floor. The market reaction was catastrophic. EUR/CHF fell from 1.20 to 0.85 intraday, a 29% move in minutes, the largest developed-market currency move in a single day ever. Several retail FX brokers went bankrupt as client positions blew through stop-losses that could not execute in the liquidity vacuum. Alpari UK went into administration. FXCM required $300 million emergency financing. Citigroup lost $150 million. Deutsche Bank lost $150 million. Swiss equities fell 10% as exporter earnings were decimated. The structural lessons reshaped FX markets. Central bank commitments, even strongly-worded ones, can be abandoned when balance sheet costs become prohibitive. Retail FX leverage (previously 100:1) was reduced sharply in the US and Japan, and regulators elsewhere followed. The SNB's foreign reserve portfolio, which by 2024 had grown to over $800 billion and included large equity positions (Apple, Microsoft, Alphabet), became one of the largest sovereign wealth funds in the world. Safe-haven currency demand for the Swiss franc continued despite negative rates, highlighting the limits of monetary policy to deter capital flows. And the episode raised persistent questions about how the Bank of Japan would eventually exit yield curve control, or how China would eventually float the yuan.