What led up to it
The Swiss franc is a currency people buy when they are worried. During the euro area’s debt crisis of 2010 and 2011 money moved into francs, and by August 2011 the euro had fallen close to one franc. That made Swiss exports expensive and threatened to push prices in Switzerland down.
On 6 September 2011 the Swiss National Bank set a minimum exchange rate of 1.20 francs to the euro and said it was prepared to buy foreign currency in unlimited quantities to enforce it. A central bank can always create its own currency to sell, so a floor of this kind is, in principle, one it can hold.
Holding it had a cost. The bank accumulated very large foreign currency reserves. By late 2014 the European Central Bank was expected to begin buying government bonds, which would weaken the euro further and require still larger purchases. In December 2014 the Swiss National Bank announced a negative interest rate on bank deposits held with it. In the days before 15 January its officials were still publicly describing the floor as central to policy.
What happened, in order
- August 2011With the euro area’s debt crisis at its height, the euro falls close to one Swiss franc.
- 6 Sept 2011The Swiss National Bank sets a minimum exchange rate of 1.20 francs to the euro and says it will buy foreign currency in unlimited quantities to hold it.
- 2012–2014The floor holds. The rate sits a little above 1.20 for long periods, and the bank’s foreign currency reserves grow very large.
- 18 Dec 2014The Swiss National Bank announces an interest rate of −0.25% on deposits that banks hold with it, to discourage holding francs.
- Early Jan 2015Markets expect the European Central Bank to announce bond purchases. Swiss National Bank officials publicly reaffirm the floor.
- 15 Jan, 10:30The Swiss National Bank announces that it is discontinuing the minimum exchange rate, and lowers its deposit rate to −0.75%.
- Minutes laterThe euro falls far below 1.20 francs. For a time there are almost no prices at all. Orders to sell at set levels are filled far from those levels, or not filled.
- The days afterThe rate settles around one franc to the euro. Several retail currency brokers become insolvent or need rescue, and some clients are left owing more than they had deposited.
- 22 Jan 2015The European Central Bank announces its programme of government bond purchases.
- 1 Aug 2018European rules for retail contracts for difference take effect, including protection against negative balances and leverage limits of 30:1 on major currency pairs.
What changed afterwards
- The losses at retail brokers, and the clients left with debts, strengthened the case for protection against negative balances. Measures from the European Securities and Markets Authority that took effect on 1 August 2018 required it for retail clients trading contracts for difference in the European Union, alongside leverage limits and a standard margin close-out rule.
- Brokers and banks raised margin requirements on the franc and on other currencies whose rates were managed by a central bank.
- Borrowers outside Switzerland who held mortgages in francs, common in parts of central and eastern Europe, saw their debts rise overnight. Some governments later passed measures to deal with those loans.
- The Swiss National Bank continued to intervene in the currency market at its own discretion and kept negative interest rates for several years.
What it helps a trader to understand
- A managed rate is a policy, and a policy can be changed in one announcement. The long calm above 1.20 was evidence of the bank’s commitment at the time, not of the currency’s stability.
- A central bank that intends to end such a policy cannot say so in advance, because the announcement would bring on the move at once. Reassurance shortly beforehand is therefore not evidence either way.
- A stop order is an instruction, not a guarantee. When no one is quoting a price, it is filled at the next price that exists, which on that morning was far away.
- With leverage, a move of that size can exceed the whole deposit. That is the plain arithmetic behind negative balances, and the reason rules on them were written afterwards.
- Low recent volatility in a pegged or floored rate describes the peg. It says little about what the rate does without one.
These are observations about how markets and rules work, drawn from one episode. They are not advice, and they do not say that anything like it will or will not happen again.
What was knowable then?
It is easy to judge an episode once its ending is known. This exercise takes three moments from the timeline above, one at a time. At each it shows only what had been made public by then, asks a hypothetical question with three plain choices, and then shows what came next and what each choice would have meant.
The text headed “what had been made public by then” is this site’s own summary of the record, written afterwards. It is not a contemporary document and nothing in it is a quotation. The position described is imagined. No choice is marked right, there is no score, and nothing is stored.
Moment 1 of 3: 2012–2014. The curve is drawn as far as this moment and nothing after it is shown.
Illustrative shape, not market data. The curve sketches the euro against the Swiss franc: the same hand-made line as at the top of this page, on a scale of 0 to 100 with no axis values, here drawn only as far as the moment reached.
Moment 1 of 3 · 2012–2014
What had been made public by then
Since 6 September 2011 the Swiss National Bank has set a minimum exchange rate of 1.20 francs to the euro, and has said it will buy foreign currency in unlimited quantities to hold it. The floor has held. The rate sits a little above 1.20 for long periods, and the bank’s foreign currency reserves have grown very large.
Suppose someone holds euros against Swiss francs a little above 1.20, with leverage, and a stop order just below 1.20. With the floor holding year after year, what would such a holder do?
A hypothetical for study, not advice. It does not say what anyone should have done then, or what to do now.
What is uncertain or disputed
The dates, the 1.20 minimum rate and the interest rates are from the Swiss National Bank’s own announcements. How far the euro fell at the extreme is uncertain: so few trades took place in the first minutes that different banks and platforms recorded different lows, and no figure is given here. Accounts of individual brokers’ losses are left out; the general outcome is a matter of record.
Questions people ask
- What happened to the Swiss franc on 15 January 2015?
- At 10:30 am Zurich time the Swiss National Bank announced that it was ending its minimum exchange rate of 1.20 francs to the euro, in place since 6 September 2011, and cut its deposit rate to −0.75%. The franc rose very sharply against the euro and other currencies within minutes.
- Why did the Swiss National Bank remove the 1.20 floor?
- The bank said the minimum rate had been an exceptional and temporary measure and was no longer justified. Holding it had required buying very large amounts of foreign currency, and expected bond purchases by the European Central Bank would have required more. The decision was made without warning because any warning would itself have ended the floor.
- Why did some traders lose more than their deposit?
- Positions in the franc were often held with leverage, and for some minutes almost no prices were quoted. Orders meant to limit losses were filled at the first available price, far beyond the level set. Where the loss was larger than the money in the account, the account went negative. Rules requiring protection against that for retail clients in the European Union came in 2018.
The words on this page
Where this account comes from
The Swiss National Bank’s press releases of 6 September 2011, 18 December 2014 and 15 January 2015, the European Securities and Markets Authority’s published measures of 2018, and contemporary newspaper reports.
A number is given on this page only where it is famous and certain. Nothing here is a quotation.
Documents
- Swiss National Bank sets minimum exchange rate at CHF 1.20 per euroSwiss National Bank (press release) · 6 September 2011The minimum rate of 1.20 and the statement that the bank was prepared to buy foreign currency in unlimited quantities.
- Swiss National Bank introduces negative interest ratesSwiss National Bank (press release) · 18 December 2014The interest rate of −0.25% on deposits that banks hold with it.
- Swiss National Bank discontinues minimum exchange rate and lowers interest rate to –0.75%Swiss National Bank (press release) · 15 January 2015The end of the minimum rate and the cut in the deposit rate, announced together.
- ECB announces expanded asset purchase programmeEuropean Central Bank (press release) · 22 January 2015The programme of government bond purchases announced a week later.
- Decision (EU) 2018/796 of the European Securities and Markets AuthorityEuropean Securities and Markets Authority · 22 May 2018The restrictions on contracts for difference for retail clients that applied from 1 August 2018: leverage limits, a margin close-out rule and protection against negative balances.
These are public documents, named by title, issuer and date. No web addresses are given, because addresses change; the title and the issuer are what to search for. The account above is this site’s summary and does not quote them.
A history for study. Educational information, not investment advice or a recommendation to trade. What happened in one episode says nothing certain about what any market will do next.