The Swiss National Bank’s  decision on Tuesday to cap the franc’s rate for the first time since 1978 marked a bid to protect trade hurt by the currency that last month strengthened to records against the euro and the dollar. The franc plunged 8,1% on Tuesday against the euro, the most since the creation of European Union’s shared currency.

The initiative may leave Norway and Sweden vulnerable to unwanted gains in their currencies as countries such as Brazil and Japan fight to limit appreciation amid a flight from the euro debt crisis and near-zero US interest rates.

With Group of Seven finance chiefs set to hold talks this week, it also exposes the clash among policy makers counting on exports to offset slumping demand at home.

"We will see a lot more intervention now, we will see manipulation on a grand scale," says Stuart Thomson, who helps oversee about $120bn as a portfolio manager at Ignis Asset Management in Glasgow. "Traditional safe havens are trying to undermine the value of their currencies."

The Swiss central bank said on Tuesday it was "prepared to buy foreign currency in unlimited quantities" to keep the euro above Sf1,20 after previous sales, injections of liquidity into the money market and zero borrowing costs failed to repel investors seeking bigger or safer returns than those offered by the US or euro area. Swiss companies including watchmaker Swatch Group say the franc’s strength is weighing on earnings and a slump in exports was among the reasons why the economy slowed in the second quarter.

The SNB’s unilateral move puts it head to head with a $4-trillion-a-day currency market that drove the franc up more than 16% against a basket of nine major peers in the year to September 2, according to Bloomberg correlation-weighted currency indices. The euro fell 1,3% over the same period, while the dollar declined 12%, the indices show.

The strategy shift is a sign other central banks may seek to weaken exchange rates in what Brazilian Finance Minister Guido Mantega last year labelled a "currency war", says David Bloom, global head of foreign-exchange strategy at HSBC Holdings. London-based HSBC on Tuesday cut its forecast for global economic growth this year to 2,6% from 3% and called a healthy recovery a "distant dream".

"As we hit zero-bound in interest rates, central banks have shifted to exchange-rate policy, aiming to have the weakest currency in town," Mr Bloom says. "This is a game that everyone can’t win, but that doesn’t mean they won’t keep trying."

Japan last month spent ¥4,51-trillion ($58bn) on yen sales, the biggest intervention for any month since 2004. Finance Minister Jun Azumi said on Tuesday he would highlight the dangers of the yen’s gains at a G-7 meeting in France this weekend.

Mr Mantega last week said he hoped a reduction in his country’s benchmark interest rate would help limit an appreciation in the real that he has sought to fight through tax policy and trade barriers.

Led by China, all of Asia’s 10 biggest economies last year sought to influence their own exchange rates to aid exporters as the dollar fell. The dollar index, which tracks the greenback against the currencies of six US trading partners, has fallen about 9% in the past year, as the US Federal Reserve kept its key rate near zero and bought $600bn of bonds from November to June.

Other economies may also be forced to join the fight, says Geoffrey Yu, a foreign-exchange strategist at UBS in London. "If people leave the franc and the yen and get crowded into the likes of Sweden and Norway, how far are the local economies going to tolerate their currencies strengthening before they do something as well?"

HSBC recommended Norway’s currency as an alternative after the Swiss National Bank’s action. The krone has strengthened 4,5% against its nine major peers over the past year, correlation-weighted indexes show, prompting finance minister Sigbjoern Johnsen and central bank governor Oeystein Olsen to signal they will act to stem currency gains that hurt exports.

Japanese policy makers are "unlikely" to follow Switzerland’s move to set a franc ceiling because their economy is so much bigger, says Masaaki Kanno, the Bank of Japan’s former chief foreign-exchange dealer and now Japan economist at JPMorgan Chase. Japan’s gross domestic product is the world’s third largest. "The big difference between Switzerland and Japan is size of economy," he says. If Japan set an upper limit for the yen at 75 or 70 per dollar, it would need to purchase a potentially "infinite" amount of dollars, which would upset the US.

Thanos Papasavvas, head of currency management at Investec Asset Management, which oversees about $95bn in London, says he thinks the Swiss intervention will work because the franc is "extremely expensive".

The selling of the franc may help stabilise markets by forcing investors to return to riskier assets, says Jim O’Neill, chairman of Goldman Sachs Asset Management in London. "Simply intervening in the franc won’t solve all the world’s problems, but it might help markets be more balanced in their herd-like panic."

Switzerland’s move also demonstrates how, three years after the collapse of Lehman Brothers Holdings, central banks are having to adopt new tools to boost growth after cutting interest rates to record or near-record lows, buying bonds and injecting billions in their financial systems, says Neil MacKinnon, global macro strategist at VTB Capital in London.