In so far as we believe monetary policy in most countries is “too tight” there could be a significant upside to the Swiss decision to set a minimum value on their Euro change rate – if currency intervention is copied by most other countries it will lead to a loosening in monetary conditions.
Scott Sumner hints at this, and its an issue we’ve discussed here before. Although it is true that “not all countries can depreciate their currencies at once” they can devalue their currency relative to goods – they can create inflation. If there are risks of deflation, or inflation expectations are below the central banks target, such intervention could be justified.
Now, when writing about the Swiss event I wasn’t quite as confident. This was due to the fact that the Swiss actually went out and set a value on the currency – rather than just loosening policy.
I can understand why they did it, they felt there was an asset price bubble in their exchange rate – and they wanted to provide a lower focal point that traders could shift too (since expectations were driving the currency … note the increase in risk associated with intervention is also important). But if everyone sets “targets” there is the risk that we get an exchange rate regime where this rate doesn’t respond to changing economic fundamentals – and given that economic fundamentals change constantly, this is a concern.