Swiss move to make its safe-haven less attractive
Risk-free? No thank you.
"Lord, make us a safe haven, but not too safe." That could be Switzerland's new national anthem.
The likes of Greece and Italy might be desperately trying to win the confidence of international investors, but today the Swiss central bank promised to spend an unlimited amount of money turning investors off.
Such are the strange - and yes, scary - times in which we live.
The Swiss have been trying to become less popular in the markets for a while now, ever since global investors decided that risk was "off" and safe havens were in. Again and again, the authorities have warned currency traders that the Swiss franc was not a one way bet. All to no avail.
Buying foreign currency to keep a lid on the Swiss franc last year cost the Swiss National Bank (SNB) nearly 20bn Swiss francs ($23.2bn, 16.6bn euros, £14.3bn) - and nearly cost its chairman, Philipp Hildebrand, his job.
The SNB has lost another 10bn Swiss francs since the start of 2011. Since the start of 2010 the currency has appreciated by 31%, in real terms
But now Mr Hildebrand has decided to get serious. Here's the key paragraph from the statement that the Bank put out first thing this morning.
I'm quoting it at length, because it's unlike any press release you're likely to have seen from a major central bank: "The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss economy and carries the risk of a deflationary development.
The Swiss National Bank (SNB) is therefore aiming for a substantial and sustained weakening of the Swiss franc. With immediate effect, it will no longer tolerate a EUR/CHF (Swiss franc) exchange rate below the minimum rate of CHF1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities. "
Central banks don't usually use phrases like "unlimited" when it comes to creating money. And let's be clear - that is what this statement means. It says that, if necessary, the central bank will create an unlimited amount of Swiss national currency to buy foreign exchange and thereby push down the value of the franc.
If tested - and it surely will be - this could be a recipe for creating hundreds of billions of Swiss francs.
Mr Hildebrand will be making a statement on national television tonight defending his actions, as well he might. But the clear message of the statement is that the central bank doesn't care about the inflationary implications of this intervention.
Or at least, it is not nearly as worried about that as it is about the deflationary implications of the high franc, which is throttling domestic industry.
The price of consumer goods is currently falling, and inflation overall is hovering around zero.
Will it work? Maybe, for a while. The franc fell by nearly 10% against the euro in a few minutes this morning, coming back slightly over the afternoon to close at 1.20 Swiss francs against the Euro.
Meanwhile the Swiss stock market closed more than 4%.
Apparently, the word "unlimited" is still worth something, even in a multi-trillion dollar global currency market.
But the record of currency pegs, and intervention in the markets to support them, is mixed at best. Indeed, it was precisely because European countries found it so hard to fix their exchange rates that the euro ever got off the ground.
The standard line from the academic literature is that central bank intervention in foreign exchange works only when it's in line with the fundamentals - and even then, only when lots of central banks work together.
Those conditions don't necessarily apply here.
In terms of the real economy, the Swiss currency certainly looks over-valued.
But investors aren't looking at the fundamentals at the moment. They're not even looking for a positive return.
They're just looking for the least wealth-destroying option available.
Eventually, that will change: investors will stop looking for safe havens, and the Swiss central bank will find its job has become a lot easier.
But in the meantime, the Swiss authorities have declared war on a wall of cash which is a lot bigger than they are, and doesn't have a lot of other places to go.
Remember I said the other lesson of history was that interventions worked best when central banks worked together? There's little sign of that today.
Quite the opposite.
In fact, what we saw today was the next round of a global currency war.
There, the big lesson of history is that they don't produce many winners.