Swiss National Bank reserves exceed SFr1tn for the first time

Swiss update

The Swiss National Bank has earned more than 43 billion Swiss francs (US$47 billion) in revenue in the past six months, as soaring US stock prices have pushed the value of its reserves above 1 trillion Swiss francs for the first time.

The huge gains of the Swiss National Bank mean that the bank now has more investment portfolios than most of the largest sovereign wealth funds in the world-equivalent to the holdings of China Investment Corporation, and much larger than the size of the Swiss economy itself. , The Swiss economy itself reported a gross domestic product of 824 billion U.S. dollars. April.

However, unlike other countries’ state-owned assets, Switzerland’s rapidly growing foreign investment portfolio is the result of unorthodox monetary policy, not natural resources or generous government bounties.

Since 2015, the Swiss National Bank has actively intervened in the financial market and purchased a large number of foreign currency-denominated securities in an attempt to curb the appreciation of the Swiss franc.

The quantitative easing policies and ultra-low interest rates in the United States and the surrounding Eurozone have put continuous pressure on the Swiss franc, and Switzerland’s status as a safe haven during the financial turmoil has compounded this issue.

In the past five years, despite the intervention of the Swiss National Bank, the exchange rate of the Swiss franc against the dollar and against the euro has appreciated by more than 6.5% and 1.5%, respectively.

Although the Swiss National Bank is not the only central bank that has expanded its balance sheet in recent years, it stands out because it invests nearly a quarter* of its reserves in foreign stocks rather than government bonds.

This policy means that the Swiss National Bank is one of the largest foreign investors in American companies such as Apple, Facebook and Microsoft.

So far, these investments have been beneficial to the Swiss National Bank: Although the bond market has lost 11.8 billion Swiss francs, rising stock valuations and dividends have driven the bank to achieve huge profits in the first half of 2021.

The Swiss National Bank’s reserves were valued at 1.04 Swiss francs at the end of June.

“The financial performance of the Swiss National Bank is largely dependent on the development of gold, foreign exchange and capital markets. Therefore, severe fluctuations are expected and only provisional conclusions can be drawn regarding annual results,” the bank said.

The huge profits of the Swiss National Bank put the bank under pressure in Switzerland to distribute part of its proceeds to the Swiss government.

In January of this year, it agreed to increase its annual spending limit on Berne (depending on its financial performance) from 4 billion Swiss francs to 6 billion Swiss francs. However, the bank’s governor firmly opposed more distribution, believing that the bank’s profits are highly uncertain. If the market is not good for the bank, a large amount of reserves will be needed to deal with the huge losses that may occur in the future.

They emphasized that the goal of the Swiss National Bank is not financial returns, but a policy to manage the stability of the Swiss franc.

As the Federal Reserve now signals to raise interest rates in the coming months, the Swiss National Bank’s monetary policy experiment will be closely watched.

The rise in asset yields in the United States and Europe may reverse the appreciation of the Swiss franc, causing people to question whether the Swiss National Bank will have to sell assets to avoid any volatility in the Swiss franc.

The Swiss National Bank also differentiates itself from its peers by listing on the stock market. Its shares listed on the Swiss stock exchange have risen by nearly 16% this year, bringing the central bank’s market value to $590 billion.

*This story has been revised to correct the proportion of reserves allocated by the central bank to foreign stocks.

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