Swiss National Bank Policies

Investing / Others
1

Hi everybody,

In the last few months I’ve seen quite a few articles talking about the Swiss National Bank’s behavior, and I was wondering if any of you had interesting insights on the subject.

Here is what I understood so far :

  1. The Swiss economy is heavily relying on the export of services and high technology manufacturing, therefore, a strong franc is very bad for the swiss economy
  2. Most western major economies (US, Europe, Japan…) and central bank have entered into quantitative easing, thus weakening their currency again the franc
  3. To avoid having a franc too strong, the SNB has started printed francs and selling them against other currencies (mainly USD), keeping in this way the franc low
  4. with all these USD, the SNB is buying a lot of foreign assets. For instance it owns almost 2 billions USD of Apple Inc.
  5. American newspapers are furious, saying “Look at the Swiss people! Printing francs out of the alpine fresh air and buying our assets!”
  6. From my point of view, the SNB is just punishing other central banks because they made their local economies weaker (but I may be wrong). Contrary to other western economies, Switzerland is not relying heavily on debt.

My two main questions are :
-> Except an american stock market crash, how can it backfire?
-> If it backfires, what will be the consequences for investors residing in Switzerland?

2 Likes
2

The obvious potential backfire is inflation. If they’re keeping the interest low/negative, buying foreign assets in exchange for printed money, and making other operations to keep franc weaker, they build a structure that in more stable circumstances might create a lot of inflation - especially when banks will become more confident and start crediting more aggressively.

How to hedge against inflation? Well, first thing is to ask for raise every year (to maintain purchase power of our salary), secondly don’t keep cash, thirdly vote on people who push for less inflationary-less debt-less monetary engineering policies.

3

Hi @Julianek,

Here’s an interesting blog post from one of my favourite monetary economists about SNB:
http://econlog.econlib.org/archives/2017/08/i_warned_the_sw.html

4

So on the balance sheet of the SNB there are the foreign currency investments (696 bln) on the asset side and sight deposits of domestic banks (468 bln) on the liabilities side:

https://www.snb.ch/en/iabout/snb/annacc/id/snb_annac_balance

Do I interpret correctly, that it is a high exchange rate risk? If CHF becomes too strong, then liabilities overpower the assets, so the SNB has to make sure the CHF does not appreciate?

1 Like
5

They have a right to print money, so they can’t go bankrupt, at least in CHF obligations and if they don’t want it. They might become negative in equity, but so what as long as the printing press is running to satisfy the creditors?

The history knows some examples of governments defaulting on their domestic currency like the Russian default of 1998, so that’s why “want”

1 Like
6

Btw, SNB’s shares are public traded on SIX - you too can have a little piece of it, and they’ve been soaring recently, +67% YTD!

(But before you go and buy this sh*t, take at look at Nationalbankgesetz regarding your shareholder rights - you don’t really have much)

1 Like
7

Recently I stumbled upon SNB shares price and it went 139% since your comment and 586.89% in just three years; for me it looks a bit strange that a public institution would skyrocket like that.

2 Likes
8

That’s really interesting. The price of SWX:SNBN was bouncing around 1000 CHF for 20 years (with fixed 15 CHF annual dividends) and then went from 1000 in 2016 to 2000 in 2017 and 8400 in 2018. Would be interested to know what happened. They did not start printing money in 2016…

9

I guess people hope for higher dividends because SNB bought a lot of stuff.

10

Pure speculation and thinly traded shares, there’s just a few dozen changing hands each day or so. These are not your ordinary bank shares, shareholder rights are severely crippled by Nationalbankgesetz. It doesn’t really much matter how many SNBN shares you buy, the true owner to whom practically all the profits will go regardless is the government. Dividends are limited to 15 CHF by law, that’s what you’ll get and even that’s not guaranteed, just in good years.

3 Likes
11

New milestone: there are now 80 Billion francs in banknotes “in circulation”.
Amount has doubled since the last crisis…
Full data here.

1 Like