The Swiss Franc Floor Removal

In 2011, the Swiss National Bank (SNB) had introduced a floor under the euro-franc exchange rate, committing to buy unlimited euros to prevent the franc from strengthening past 1.20 per euro. The move responded to genuine economic pressure: the franc was seen as a safe haven during the eurozone debt crisis, capital kept flowing into it, and an ever-strengthening franc was hurting Swiss exporters by making their goods more expensive abroad. The floor worked as advertised for over three years — the exchange rate held reliably at or near 1.20, and markets came to treat the floor as a fixture, much like any long-standing central bank commitment.

On January 15, 2015, with no advance warning, the SNB abandoned the floor entirely. The franc, freed from the peg, appreciated roughly 30% against the euro within minutes of the announcement — one of the sharpest moves ever seen in a major, heavily traded currency pair, compressed into a matter of seconds rather than unfolding over days.

The abruptness is what made the episode so damaging. Currency brokers and their retail clients had built leveraged positions assuming the floor — an official, years-long central bank commitment — would hold, or at worst move gradually if it didn't. A 30% gap move in minutes blew through stop-losses and margin levels that had never been designed for a move of that speed or size, leaving several retail FX brokers (including some well-known names) with client losses so large the brokers themselves became insolvent, unable to collect what clients now owed them.

The SNB's reasoning was that continuing to defend the floor was becoming unsustainably expensive — it required buying essentially unlimited euros, expanding the SNB's balance sheet indefinitely, especially as the ECB was about to launch its own large-scale bond-buying program that would have put even more downward pressure on the euro. Rather than defend an increasingly costly commitment, the SNB chose to abandon it outright, and chose to do so without warning specifically to prevent speculators from front-running the move.

The episode is now a standard case study in FX risk management: any currency peg or floor, no matter how official or long-standing, carries tail risk that ordinary stop-loss orders cannot protect against if it breaks as a discontinuous gap rather than a gradual slide.