The spectacular profits of the Swiss Central Bank

Article about The spectacular profits of the Swiss Central Bank

Oct 7, 2020

Safe haven of refuge

In times of turmoil in the financial markets, the Swiss franc is considered one of the safest havens of refuge. This is also the case during the current pandemic. Despite the fact that interest rates are nowhere else in the world as low as in Switzerland, huge financial flows found their way to the country of the snow-capped peaks. Swiss banks have had negative interest rates since 2014. It has not been able to prevent the franc from rising by 13% against the euro since then. The Swiss stock exchange has also been doing well for years. For example, the SMI index did not suffer a loss this year. The Dow Jones index, for example, recorded a loss of more than 8%. However, the popularity of the franc is giving the Swiss Central Bank a headache.

The SNB’s balance sheet

After all, the central bank must protect the Swiss economy. The strong franc damages the competitiveness of the exporting country. It also brings the monster of deflation closer. As such, the Swiss National Bank (SNB) is keen to keep the value of the franc under control. To this end, the SNB pursues a twin-track policy by means of negative interest rates and the large-scale purchase of foreign investments. The first has led to a negative interest rate of 0.75 percent. The second led to the swelling of SNB’s balance sheet to unprecedented proportions. Recently it reached a size of 950 billion francs. This has made SNB one of the world’s largest investors, not much smaller than, for example, the Norwegian State Fund.


In relation to the size of Swiss GNP, the balance really stands out. The SNB’s balance sheet amounts to no less than 135% of GNP. By way of comparison, both the Federal Reserve and the ECB, despite their massive buy-back programmes, account for no more than 30% of the GNP of the United States and the European Union respectively. These figures really show the price that the Swiss have to pay for their — relative — independence. Switzerland is not part of the euro and is a relatively small economy. It raises many headaches for the monetary authorities.

Technology investor

During the coronavirus outbreak, the franc once again proved to be a popular refuge. It forced the SNB to make large-scale interventions on the currency market. In the first quarter, more than 38 billion francs were issued, in the second quarter more than 51 billion. Francs were sold in order to be able to buy foreign currency — mainly dollars and euros — and gold. The SNB now owns 1 000 tonnes of gold, worth 59 billion francs. However, its position in American shares is much more spectacular. With its enormous position in Apple, Amazon, Microsoft, Alphabet and Facebook, the SNB is one of the largest investors in technology stocks worldwide.

The spectacular rise in price

The fall in prices on the stock exchanges resulted in a loss of 38 billion francs in the first quarter. It will come as no surprise that the recovery in the stock markets in the second quarter resulted in a profit of 39 billion francs. The record profits on the Nasdaq will have filled the bank’s treasury ever since. That is good news for SNB shareholders. Fifty-five percent of the shares are held by various regional governments and banks in Switzerland. The rest is in private hands — 100,000 shares to be precise — and negotiable on the stock exchange. The share has been trading for years at a price of 1,000 francs. However, in the course of 2016 — when the SNB’s policy changed — the share price started to rise spectacularly, to a peak of over 8600 francs in the spring of 2018. The current exchange rate is 4800 francs.

Currency manipulator?

However, large-scale interventions and spectacular profits have also attracted the attention of the authorities in the United States. For example, the SNB has been put on the observation list of exchange rate manipulators. After all, Switzerland has a large current account surplus and a significant trade surplus with the United States. Switzerland is also accused of manipulating the exchange rate of the franc against the dollar. However, the SNB does not seem to be interested in the latter at all. It claims to be transparent about the interventions motivated solely by monetary policy and in order to counteract the adverse effects of too strong a franc on inflation and the economy. They are certainly not intended to give the country an advantage through undervaluation of the currency. The Swiss cannot do much else either. In recent years, for example, the SNB has become the most successful hedge fund in the world.

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Articles authored by  Robert Jan Teuwissen

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