The change comes just one week before ECB policy makers meet to discuss introducing new stimulus, including quantitative easing, a move that may add to pressure on the franc against the euro. As a small, export-oriented economy with a big banking sector, Switzerland has repeatedly grappled with how to rein in a currency popular with investors at times of crisis.

"The SNB doesn't see any future any more for their floor with the strong U.S. dollar and the QE ahead at the ECB," said Alessandro Bee, strategist at Bank J Safra Sarasin AG in Zurich.

The central bank has already spent billions defending the cap after introducing it in September 2011. SNB Vice President Jean-Pierre Danthine said in comments broadcast Jan. 13 that the 1.20 ceiling would remain a "pillar" of monetary policy, while on Jan. 5 President Thomas Jordan termed it "absolutely central."

Not one of 22 economists surveyed by Bloomberg News between Jan. 9 and Jan. 14 expected the SNB to get rid of its cap in 2015. Only four saw it abandoning the measures next year.

On Dec. 18, the SNB announced the introduction of a negative deposit rate of minus 0.25 percent to supplement its franc ceiling, citing the need to stem a tide of money flowing from Russia's financial crisis. The measure was to take effect on Jan. 22, the day of the ECB's next policy decision.

"The SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified," it said in a statement today.

Franc Surge

The franc appreciated as much as 41 percent to 85.17 centimes per euro following the announcement. That is the strongest level on record, according to data compiled by Bloomberg. Against the dollar, it was up 14 percent at 87.76 centimes. Switzerland's benchmark SMI index declined as much as 14 percent in Zurich.

In the 1970s, when the Swiss were also battling a strong franc, the government imposed negative interest rates on assets held by foreigners. When that proved ineffective, the SNB imposed a ceiling on the franc versus the German mark.

More recently, the SNB, then led by Philipp Hildebrand, spent billions of francs on spot market interventions. As a result, it ran up a 19 billion-franc book loss for 2010, resulting in calls for Hildebrand to resign.

It introduced the cap in September 2011 and, in 2012, spent $199 billion defending the minimum rate. Chiefly due to its currency-market interventions, it held a record 495.1 billion francs of foreign currencies as of late last year.

To complement the lower deposit rate, the SNB also moved the target range for the three-month Libor to between minus 1.25 percent and minus 0.25 percent, from the current range of between minus 0.75 percent and 0.25 percent.

"It may show that the SNB doesn't want to widen its balance sheet any more," said Maxime Botteron, economist at Credit Suisse Group AG in Zurich.