Only days ago, SNB officials had described the 1.20 francs per euro cap, introduced in 2011 at the height of the euro zone crisis to prevent the strong currency leading to deflation and a recession, as the cornerstone of the bank's monetary policy.
The U-turn sent the franc nearly 30 percent higher against euro in chaotic early trading. It came a week before the European Central Bank is expected to unveil a massive bond-buying program that might have forced the SNB to intervene repeatedly to defend the cap.
"Today's SNB action is a tsunami; for the export industry and for tourism, and finally for the entire country," said Nick Hayek, chief executive of Swiss watch firm Swatch.
SNB Chairman Thomas Jordan denied at a news conference that the move amounted to a "panic reaction", saying the cap had been scrapped because it was unsustainable.
"If you decide to exit such a policy, you have to take the markets by surprise," Jordan said.
As it removed the upper limit on the currency, the SNB sought to discourage new flows into Swiss francs by pushing down its interest rate on some cash deposits held at the central bank by commercial banks and other financial institutions.
After taking the rate into negative territory last month for the first time since the 1970s, it cut another 0.5 percentage points on Thursday to -0.75 percent, a move Jordan said would help ease upward pressure on the franc over time.
"The values we currently see (on currency markets) point to a massive overvaluation of the franc. They should come back down to more sustainable levels," Jordan said. "Markets tend to overreact when confronted with such a surprise."
Earlier this month, Jordan described the cap as "absolutely central", while SNB vice-chairman Jean-Pierre Danthine said on Monday it would remain the cornerstone of SNB policy.
"In my opinion, this damages confidence in the Swiss National Bank that has always been saying it can keep up the minimum exchange rate," said Alessandro Bee, economist at Swiss bank Sarasin. "I see big risks in this."
In what now looks like a signal the move might be coming, Ernst Baltensperger, an influential academic and former SNB adviser who is close to Jordan, said last weekend the SNB should move away from the "temporary" cap.
Leading newspaper Neue Zuercher Zeitung described the move as "unavoidable".