The Swiss central bank imposed a ceiling on the franc for the first time in more than three decades and pledged to defend the target with the "utmost determination," prompting a record drop in the currency.

The Swiss National Bank is "aiming for a substantial and sustained weakening of the franc," the Zurich-based bank said in an e-mailed statement today. "With immediate effect, it will no longer tolerate a euro-franc exchange rate below the minimum rate of 1.20 francs" and "is prepared to buy foreign currency in unlimited quantities."

The franc plunged the most ever against the euro after the SNB announced the measure last introduced in 1978 to stem gains versus the Deutsche mark. While the central bank in August boosted liquidity to the money market and lowered borrowing costs to zero to protect the economy, investor concern that governments may struggle to contain Europe's worsening debt crisis continued to push the currency higher.

"The SNB has committed itself to creating unlimited amounts of francs and selling them versus the euro to defend the currency's level," said Fabian Heller, an economist at Credit Suisse Group AG in Zurich. "They will follow through on their commitment as otherwise their credibility would be clearly damaged and speculation would start again, most likely leading to renewed franc gains."

The franc snapped four days of gains versus the euro, dropping as much as 8.7 percent. It traded at 1.2025 at 5:46 p.m. in Zurich and was at 85.82 centimes versus the dollar.

David Fuller's view The Swiss National Bank's intervention is certainly understandable given the deflationary pressures created by the currency's appreciation. Money had been pouring into the Swiss franc from European investors fleeing a further loss of purchasing power in euros (weekly & daily), other regional currencies and also the US dollar (weekly & daily).

The Swiss franc had also become a gold proxy over the last 20 months, for people who wanted purchasing power protection from a highly liquid market other than bullion.

An interesting question following SNB intervention is: how might this affect some other markets?

One can only hypothesise but it seems obvious to me that pegging the Swiss franc to the euro will certainly end talk of CHF being 'as good as gold'. Therefore, a proxy abandoned is likely to increase interest in gold (in USD and CHF) and other precious metals among some of the people who currently hold Swiss francs.

It will also embolden Japan's new prime minister Yoshihiko Noda to weaken the yen (shown inversely against the USD), despite the BoJ's lack of enthusiasm for currency intervention.