BUSINESS
09/06/2011 04:37 EDT | Updated 11/05/2011 05:12 EDT

Swiss Franc's Value Tied To Euro In Shock Decision

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GENEVA - The Swiss National Bank on Tuesday decided to fix the country's exchange rate at 1.20 francs per euro and indicated it would buy an unlimited amount of euros regardless of the risk to maintain that value.

The central bank is exercising what many analysts in recent weeks had called the last-ditch "nuclear option" because of the uncertain effects and risks to the strong Swiss economy.

"The current massive overvaluation of the Swiss franc poses an acute threat to the Swiss and carries the risk of a deflationary development," the bank said in a statement that announced the goal of "a substantial and sustained weakening of the Swiss franc."

The euro, which had been trading around 1.10 francs before the announcement, shot up to 1.2024 afterward.

The SNB said it would immediately "no longer tolerate" an exchange rate below the minimum of 1.20 francs per euro and would "enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities."

But it said even the rate of 1.20 francs per euro was too strong and "should continue to weaken over time" — and that it was prepared to take further measures to make that happen.