He Said That? 1/16/15

From Swiss National Bank President Thomas Jordan:

“We decided that due to international developments the time was right to discontinue the minimum exchange rate. The maintenance of the cap for the franc-euro isn’t sustainable or sensible in the long term.”

Mr. Jordan said the timing of the decision was meant to be a surprise. Indications that the SNB was planning a policy change might have encouraged improper trading, he said.

The Wall Street Journal, “Switzerland’s Surprise Move Roils Global Markets,” 1/16/15

The surprise decision by the SNB to eliminate its peg of the Swiss franc violated all the rules of crony speculation. At the Fed and ECB, hints of impending policy changes are carefully leaked to select news outlets (the Fed’s favorite mouthpiece is Jon Hilsenrath at The Wall Street Journal) well before the actual change. This gives bank trading desks and hedge funds an opportunity to front-run the policy change. That costs the central banks money, but hey, isn’t that the point of crony speculation? By the time of the change, markets know what to expect, and while their may be a minor surprise or two, it’s nothing compared to the Swiss surprise yesterday (see “Uh Oh,” SLL 1/16/15). Thank you, Mr. Jordan, for putting the risk back into crony speculation.

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