Switzerland has scrapped its three-year bid to hold down the value of its currency in a shock announcement that briefly set off panic in the markets and risks damaging its economy.

Minutes after the Swiss central bank SNB said it was abandoning the minimum rate of 1.20 francs against the euro it strengthened almost 30 per cent to 0.8517 against the common European currency before easing back to 1.0421.

Fearful that a strong franc could dent earnings as it makes local products more expensive, investors dumped Swiss stocks, and by the end of the day the SMI Index in Zurich had lost 8.7 per cent to 8,400.61 points.

The impact was felt as far as in Poland where 700,000 mortgages, or 40 per cent of the total, are denominated in the franc.

The zloty lost a fifth of its value against the Swiss currency, making it more expensive for Polish homeowners to repay their loans.

Given the panic felt especially in the Swiss market, IG analyst Andreas Ruhlmann said he expected the Swiss central bank to rapidly shift strategies "to a new one which will better represent the real market conditions".

Swiss business leaders called the central bank's decision a disaster, with banking giant UBS saying it would lead to a drop of five billion francs ($A6.9 billion) worth of exports and knock 0.7 percentage points off overall output growth.

"I am at a loss for words," Swatch group's boss Nick Hayek told news agency ATS.

"What the SNB has sparked here is a tsunami."

The Swiss watchmaking giant was among top losers on the stock market, with its shares tumbling 16.4 per cent, while those of the world's second largest luxury group Richemont slumped 15.5 per cent.

Swissmem, which represents the machine building industry, which is Switzerland's second-largest export generator, warned that if the franc remains strong "the existence of a many companies will be threatened".

The SNB had been defending the exchange rate floor since September 2011 in an effort to protect the country's vital export and tourism industries, even buying massive quantities of foreign currencies to do so.

But the bank, which less than a month ago vowed to enforce the exchange rate floor "with the utmost determination", said on Thursday it was no longer needed.

"The minimum exchange rate was introduced during a period of exceptional overvaluation of the Swiss franc and an extremely high level of uncertainty on the financial markets," the bank said.

"While the Swiss franc is still high, the overvaluation has decreased as a whole since the introduction of the minimum exchange rate. The economy was able to take advantage of this phase to adjust to the new situation," it added.