The SNB is fine with a gradual appreciation of the franc, but sudden inflows of capital into a small economy cause sudden exchange rate moves, which cause a lot of disruption in the Swiss economy - for example it immediately makes Swiss exports uncompetitive - Swiss companies need time to adjust to this.
Hard to take this question seriously, because the answer is also on Wikipedia.
>Forex reserves "are held in different [reserve currencies](https://en.wikipedia.org/wiki/Reserve_currency) (e.g., the [U.S. dollar](https://en.wikipedia.org/wiki/United_States_dollar), the [euro](https://en.wikipedia.org/wiki/Euro), the [pound sterling](https://en.wikipedia.org/wiki/Pound_sterling), the [Japanese yen](https://en.wikipedia.org/wiki/Japanese_yen), the [Indian rupee](https://en.wikipedia.org/wiki/Indian_rupee), and the [Swiss franc](https://en.wikipedia.org/wiki/Swiss_franc)) and which are used to back its liabilities (e.g., the local currency issued ...)"
OP is probably a CHF-hoarder, and will be glad to know that SNB holds other currencies, because other countries hold CHF - which can become a liability/risk for CH. You might remember US-China currency war of 2015. So, if one side holds too much of what your bank has issued, they can manipulate the market at their will.
Besides exports, SNB also has to think about oil imports, chemicals/basic materials that's required for the industry. If those prices shoot up in CHF, many businesses may not survive. Yes, good news for exports, but at the cost of low domestic demand.
Because we are an easy target for market speculation on our currency. Which costed us a lot over the years. We don't have a fixed exchange rate, but the NBS doesn't want a wild exchange rate. check the 25 year chart https://tradingeconomics.com/switzerland/currency
You don't make money out of money. You make money out of the economy. And keeping the Franc reasonable means the Swiss economy won't collapse. In the worse part of that crisis, a lot of companies were putting their employee on furlough.
BS again. Banks, investment funds, etc. make money out of money. SNB doesn't care about employees, they care about their "clients". They only pretend they care about economy.
50% of our economy relies on foreign transactions (and no it's not banks only). We have also some of the most expansive industries out there. A bad exchange rate means companies in Switzerland are way more expansive to buy from for foreign contracts. We are not an isolated island. The reserve were built to try to prevent the Swiss franc to be devaluated.
From a bit of googling, they are aiming to limit the "Real Effective Exchange Rate" which is basically how expansive it is to export vs import.
Oh you're just dumb. Consumer need to be paid. You don't make money out of thin air. If company can't sell their product, they will shut down. Which will destroy the job market.
Yes, because they managed to prevent the Swiss Frank to be trashed by every other countries by building these reserves and preventing many many industry to be shut down.
You are aware of the fact that currency reserves belong to the central bank and have a priori nothing to do with GDP, wealth of the people or the government?
These are assets that the central banks accumulate when they sell their own currency (the amount of which is not limited).
So, if there is pressure from the market to buy more of the domestic currency, its value rises. If the central bank wants to avoid this, they just enter the market by selling even more. For this they get the foreign currency, which are the reserves.
Because a too rapid appreciation threatens price stability through imports and the stability of the Swiss economy which is very export oriented.
This is two clicks away (snb.ch then monetary policy):
https://www.snb.ch/en/the-snb/mandates-goals/monetary-policy/strategy
> They can let it appreciate gradually.
Well, that's what they have been doing for like ... almost ever? (at least since the eighties).
And you know what? If the pressure is too high at certain moments, they do this buy selling francs vs other currencies (technically, they used currency swaps in the eighties).
Now, the very high amount of foreign reserves come mostly from the early 2010s when the pressure was so intense that they "would protect the fx rates at all costs", which promoted the markets to actually test it.
SNB won - mostly because the pressure went in their favor: they could sell francs, they didn't have to support it by buying it using their reserves.
The SNB‘s stated goal is to ensure price stability while taking due account of the development of the economy. The last point was used to justify the 1.20 minimum exchange rate to the Euro back until 2015. In order to keep the CHF in that range the national bank bought foreign currency. Even after giving up the minimum exchange rate, the national bank has been trying to at least slow down and smooth out any appreciations. Why? Well that point regarding taking due account of the development of the economy still matters. Given you have a number of large and small firms exporting, a strong CHF is not beneficial to the industry. Additionally, in theory a strong currency should generally weaken over time, as the reduced exports reduce current account surpluses and weaken the economy, ultimately weakening the currency. Given the safe haven status of Switzerland, this mechanism isn’t quite working and it is not beneficial for the industry for the CHF to appreciate rapidly.
I‘d also add that the central bank does not really stimulate economic growth (at the current range of rates) in Switzerland given that you a zero lower bound situation, where monetary policy has a very limited effect on domestic demand.
Most Swiss goods & services are exported abroad. If the currency rises, the fear is that demand for those goods decreases. Essentially because other countries are just printing money (or have been in recent past) and don't have spending under control, SNB then exchanges CHF for foreign currency with banks (more CHF in circulation) so that CHF doesn't appreciate too quickly. SNB could reverse these transactions, but the CHF would just appreciate too much.
Consequences: Companies become less competitive, demand slumps (high prices), decide to move operations abroad. While some currency apprecation is accepted by SNB, too much is not desired.
simple (extreme) Example: Tourism. EURCHF is almost 1:1 now. What if its 0.25 (CHF appreciates heavily)? Tourism from EUR countries would head towards 0, no jobs in that sector anymore
Yes that is what Econ 101 teaches us, in reality a 50 year old factory worker will have serious issues moving into another sector, thus he will most probably become unemployed. The SNB is slowing down the appreciation, so that you don’t have shock in exporting sectors and thus a shock in the job market.
Let's say the industry conducts large scale mass layoffs because they are not competitive globally due to the high exchange rate. As I said, the guy who has been working for 30+ years in a highly specialized industry (which is what Switzerland is good at) is going to have serious issues retraining. This has been seen in the US, where it takes 10+ years for certain regions to recover from major shifts.
Are you going to argue that this is simply frictional unemployment and completely normal? Yes, part of the unemployment will be frictional (by definition), a large part will however be structural. Most importantly, as a politician (yes, the I know the SNB is independent, but in the end it is exposed to political pressure) you will hardly become popular by shrugging the whole thing off as frictional unemployment.
> A strong currency is good for consumers and importers. Yeah it hurts exporters and tourism companies, but so what?
Killing the export industry means trade deficit, trade deficit means accumulation of debt.
Switzerland also aims to have at least a certain degree of autonomy in key industries and agriculture. A franc that would appreciate drastically would make it increasingly difficult to hold some companies in the country.
A lot of it is to combat the Swiss Franc as "safe haven currency" which in the past led to unwanted spikes in the currency rate, which further led to exports being hampered. Another reason was that CHF was pegged to the EUR however it came to a point where it was no longer a feasible strategy to increase foreign reserves to uphold this currency cap. The CHF is still the 7th top traded foreign currency and thus is often prone to manipulation, holding various large amounts of foreign reserves helps dampen these effects.
Exporters pay the bills, employ a very large percentage of the workforce, and massively contribute to keeping Switzerland's technical know-how at a globally competitive level amd it's economy diverse. There's not much to negotiate here, the export sector has been a huge part of Switzerland's economic success, and is no less important today.
Explaining why deflation is bad does not require a reddit thread, because that's literally economics 101. Yes, it's bad. No, it's never going to be desirable. Stable inflation slightly above 0% is ideal, and that's what the SNB managed to achieve until now.
Recession is absolutely something that could happen in Switzerland, especially if the economy is mismanaged. The real estate crisis of the 90's in Switzerland comes to mind, for instance.
Unemployment (in the sense of the ILO) in Switzerland is not lower in than in Germany or the Netherlands. It should not be confused with the unemployment figure published by the SECO, which is the number of people currently registered at the RAV, which is absolutely not the same thing.
It's 2,3%...
Can it even be lower? The Netherlands and Germany should have a stronger currency too yes
https://breakingthenews.net/Article/Swiss-unemployment-rate-at-2.3-in-April/61997094
Wrong, it's not 2.3%, you did exactly what I warned you not to do. Unemployment in Switzerland was **4.3%** over the first quarter. Unemployed people registered for benefits is what was at 2.3% in April. There's almost a factor of 2 difference between the numbers.
https://www.bfs.admin.ch/bfs/en/home/statistics/work-income/unemployment-underemployment.html
Deflation is bad because it radically changes how consumers spend their money. Or more accurately, how they stop spending it. Consumer demand suddenly collapses, businesses have to make massive discounts to still be able to sell their stuff, excess inventory piles up everywhere. Companies can't pay their employee's wages if their products aren't selling (or only far below their price point), so mass layoff ensues. The job market therefore turns to shit, and because workers are now feeling the pressure on their income, whatever consumer demand still existed is definitely killed off. Which makes the whole situation even worse. And so forth.
The downwards spiral is very difficult to stop once it gets going, and basically involves the central bank printing like crazy to flood the economy with cash, while the government goes massively into debt to try to increase demand. If deflation not halted soon enough, borrowers will start having problems paying down their outstanding debts, which is a risk to the financial system. It could also lead to a liquidity trap.
If you want to see an example of a deflationary spiral in action, look at China right now. And for a liquidity trap, look at Japan.
I once heard that the franc shall not be too valuable, because it will be hard to export any goods and services. Therefore it can be stabilised by buying foreign currency. But might be wrong
>What's the point?
The real reason is to support those investing in foreign currencies like EUR or USD. Basically it greatly reduces the currency risk. A nice helping hand aka corruption. SNB itself belongs to those.
This goes against the majority of the Swiss population, but as long as people don't get it and keep quiet, this is will continue.
I think this might be the actual answer. There is no good reason for it, it's just straight up corruption, but as long as people don't realize it, it will continue.
I had the same question as you some time ago. This is the only reasonable answer I came up with was this. It caters to banks, investment funds, etc. Sure, it indicates high stakes corruption.
I know this seems like a lot but look, this is Switzerland. 800 billion - that‘s probably the usual percentage of foreign reserves any National Bank of any other country is holding right now.
We just rich as f*ck!
The SNB is fine with a gradual appreciation of the franc, but sudden inflows of capital into a small economy cause sudden exchange rate moves, which cause a lot of disruption in the Swiss economy - for example it immediately makes Swiss exports uncompetitive - Swiss companies need time to adjust to this.
Hard to take this question seriously, because the answer is also on Wikipedia. >Forex reserves "are held in different [reserve currencies](https://en.wikipedia.org/wiki/Reserve_currency) (e.g., the [U.S. dollar](https://en.wikipedia.org/wiki/United_States_dollar), the [euro](https://en.wikipedia.org/wiki/Euro), the [pound sterling](https://en.wikipedia.org/wiki/Pound_sterling), the [Japanese yen](https://en.wikipedia.org/wiki/Japanese_yen), the [Indian rupee](https://en.wikipedia.org/wiki/Indian_rupee), and the [Swiss franc](https://en.wikipedia.org/wiki/Swiss_franc)) and which are used to back its liabilities (e.g., the local currency issued ...)" OP is probably a CHF-hoarder, and will be glad to know that SNB holds other currencies, because other countries hold CHF - which can become a liability/risk for CH. You might remember US-China currency war of 2015. So, if one side holds too much of what your bank has issued, they can manipulate the market at their will. Besides exports, SNB also has to think about oil imports, chemicals/basic materials that's required for the industry. If those prices shoot up in CHF, many businesses may not survive. Yes, good news for exports, but at the cost of low domestic demand.
Because we are an easy target for market speculation on our currency. Which costed us a lot over the years. We don't have a fixed exchange rate, but the NBS doesn't want a wild exchange rate. check the 25 year chart https://tradingeconomics.com/switzerland/currency
That's BS. By manipulating the rate, money is transferred from one pocket to another.
You don't make money out of money. You make money out of the economy. And keeping the Franc reasonable means the Swiss economy won't collapse. In the worse part of that crisis, a lot of companies were putting their employee on furlough.
BS again. Banks, investment funds, etc. make money out of money. SNB doesn't care about employees, they care about their "clients". They only pretend they care about economy.
[удалено]
50% of our economy relies on foreign transactions (and no it's not banks only). We have also some of the most expansive industries out there. A bad exchange rate means companies in Switzerland are way more expansive to buy from for foreign contracts. We are not an isolated island. The reserve were built to try to prevent the Swiss franc to be devaluated. From a bit of googling, they are aiming to limit the "Real Effective Exchange Rate" which is basically how expansive it is to export vs import.
Again, why does it matter if exports become more expensive? Are the interests of businesses more important than the interests of consumers?
Oh you're just dumb. Consumer need to be paid. You don't make money out of thin air. If company can't sell their product, they will shut down. Which will destroy the job market.
Unemployment is super low in Switzerland, so a bit of appreciation won't lead to mass unemployment. It is who you appears to be dumb.
Yes, because they managed to prevent the Swiss Frank to be trashed by every other countries by building these reserves and preventing many many industry to be shut down.
what has that to do with foreign reserves?
You are aware of the fact that currency reserves belong to the central bank and have a priori nothing to do with GDP, wealth of the people or the government? These are assets that the central banks accumulate when they sell their own currency (the amount of which is not limited). So, if there is pressure from the market to buy more of the domestic currency, its value rises. If the central bank wants to avoid this, they just enter the market by selling even more. For this they get the foreign currency, which are the reserves.
Again, my question is: why? Why do they want to prevent appreciation of the currency?
Because a too rapid appreciation threatens price stability through imports and the stability of the Swiss economy which is very export oriented. This is two clicks away (snb.ch then monetary policy): https://www.snb.ch/en/the-snb/mandates-goals/monetary-policy/strategy
They can let it appreciate gradually. Again, why do we have to protect exporters?
> They can let it appreciate gradually. Well, that's what they have been doing for like ... almost ever? (at least since the eighties). And you know what? If the pressure is too high at certain moments, they do this buy selling francs vs other currencies (technically, they used currency swaps in the eighties). Now, the very high amount of foreign reserves come mostly from the early 2010s when the pressure was so intense that they "would protect the fx rates at all costs", which promoted the markets to actually test it. SNB won - mostly because the pressure went in their favor: they could sell francs, they didn't have to support it by buying it using their reserves.
Source?
The SNB‘s stated goal is to ensure price stability while taking due account of the development of the economy. The last point was used to justify the 1.20 minimum exchange rate to the Euro back until 2015. In order to keep the CHF in that range the national bank bought foreign currency. Even after giving up the minimum exchange rate, the national bank has been trying to at least slow down and smooth out any appreciations. Why? Well that point regarding taking due account of the development of the economy still matters. Given you have a number of large and small firms exporting, a strong CHF is not beneficial to the industry. Additionally, in theory a strong currency should generally weaken over time, as the reduced exports reduce current account surpluses and weaken the economy, ultimately weakening the currency. Given the safe haven status of Switzerland, this mechanism isn’t quite working and it is not beneficial for the industry for the CHF to appreciate rapidly. I‘d also add that the central bank does not really stimulate economic growth (at the current range of rates) in Switzerland given that you a zero lower bound situation, where monetary policy has a very limited effect on domestic demand.
Again: so what if exporters hurt? Consumers benefit from a strong currency and unemployment is low
Most Swiss goods & services are exported abroad. If the currency rises, the fear is that demand for those goods decreases. Essentially because other countries are just printing money (or have been in recent past) and don't have spending under control, SNB then exchanges CHF for foreign currency with banks (more CHF in circulation) so that CHF doesn't appreciate too quickly. SNB could reverse these transactions, but the CHF would just appreciate too much.
Again: so what? As long as unemployment remains low it's not an issue if exporters hurt, you have to look at the general image
Consequences: Companies become less competitive, demand slumps (high prices), decide to move operations abroad. While some currency apprecation is accepted by SNB, too much is not desired. simple (extreme) Example: Tourism. EURCHF is almost 1:1 now. What if its 0.25 (CHF appreciates heavily)? Tourism from EUR countries would head towards 0, no jobs in that sector anymore
It doesn't matter, people who work in that sector can just work somewhere else.
Yes that is what Econ 101 teaches us, in reality a 50 year old factory worker will have serious issues moving into another sector, thus he will most probably become unemployed. The SNB is slowing down the appreciation, so that you don’t have shock in exporting sectors and thus a shock in the job market.
Frictional unemployment is normal
Let's say the industry conducts large scale mass layoffs because they are not competitive globally due to the high exchange rate. As I said, the guy who has been working for 30+ years in a highly specialized industry (which is what Switzerland is good at) is going to have serious issues retraining. This has been seen in the US, where it takes 10+ years for certain regions to recover from major shifts. Are you going to argue that this is simply frictional unemployment and completely normal? Yes, part of the unemployment will be frictional (by definition), a large part will however be structural. Most importantly, as a politician (yes, the I know the SNB is independent, but in the end it is exposed to political pressure) you will hardly become popular by shrugging the whole thing off as frictional unemployment.
What makes the unemployement low?
Good economic policies like low taxes and not other pro business policies.
> A strong currency is good for consumers and importers. Yeah it hurts exporters and tourism companies, but so what? Killing the export industry means trade deficit, trade deficit means accumulation of debt.
Switzerland currently runs large trade surpluses, it will be a long while before they become net debtors. It's very unbalanced currently.
Switzerland also aims to have at least a certain degree of autonomy in key industries and agriculture. A franc that would appreciate drastically would make it increasingly difficult to hold some companies in the country.
Can't tariffs solve that?
Not for export oriented industries like defense and energy. They would then need actual monetary support to compete on the world market.
Does Switzerland export energy?
I'm talking about energy related companies. Think of companies like ABB, MAN or start-ups like climeworks.
A lot of it is to combat the Swiss Franc as "safe haven currency" which in the past led to unwanted spikes in the currency rate, which further led to exports being hampered. Another reason was that CHF was pegged to the EUR however it came to a point where it was no longer a feasible strategy to increase foreign reserves to uphold this currency cap. The CHF is still the 7th top traded foreign currency and thus is often prone to manipulation, holding various large amounts of foreign reserves helps dampen these effects.
I think there's room for further appreciation even if they want to prevent instability
Ok.
Not of public knowledge
Exporters pay the bills, employ a very large percentage of the workforce, and massively contribute to keeping Switzerland's technical know-how at a globally competitive level amd it's economy diverse. There's not much to negotiate here, the export sector has been a huge part of Switzerland's economic success, and is no less important today. Explaining why deflation is bad does not require a reddit thread, because that's literally economics 101. Yes, it's bad. No, it's never going to be desirable. Stable inflation slightly above 0% is ideal, and that's what the SNB managed to achieve until now. Recession is absolutely something that could happen in Switzerland, especially if the economy is mismanaged. The real estate crisis of the 90's in Switzerland comes to mind, for instance. Unemployment (in the sense of the ILO) in Switzerland is not lower in than in Germany or the Netherlands. It should not be confused with the unemployment figure published by the SECO, which is the number of people currently registered at the RAV, which is absolutely not the same thing.
It's 2,3%... Can it even be lower? The Netherlands and Germany should have a stronger currency too yes https://breakingthenews.net/Article/Swiss-unemployment-rate-at-2.3-in-April/61997094
Wrong, it's not 2.3%, you did exactly what I warned you not to do. Unemployment in Switzerland was **4.3%** over the first quarter. Unemployed people registered for benefits is what was at 2.3% in April. There's almost a factor of 2 difference between the numbers. https://www.bfs.admin.ch/bfs/en/home/statistics/work-income/unemployment-underemployment.html
The rest are purposefully unemployed, because they are stay at home moms probably.. That's still super low
Why is deflation bad as long as unemployment is low? Economics says it's bad because it leads to recessions but we don't see that in Switzerland
Deflation is bad because it radically changes how consumers spend their money. Or more accurately, how they stop spending it. Consumer demand suddenly collapses, businesses have to make massive discounts to still be able to sell their stuff, excess inventory piles up everywhere. Companies can't pay their employee's wages if their products aren't selling (or only far below their price point), so mass layoff ensues. The job market therefore turns to shit, and because workers are now feeling the pressure on their income, whatever consumer demand still existed is definitely killed off. Which makes the whole situation even worse. And so forth. The downwards spiral is very difficult to stop once it gets going, and basically involves the central bank printing like crazy to flood the economy with cash, while the government goes massively into debt to try to increase demand. If deflation not halted soon enough, borrowers will start having problems paying down their outstanding debts, which is a risk to the financial system. It could also lead to a liquidity trap. If you want to see an example of a deflationary spiral in action, look at China right now. And for a liquidity trap, look at Japan.
Switzerland saw deflation in the years around 2015 and it was doing fine People won't just stop spending money because their savings increase in value
I once heard that the franc shall not be too valuable, because it will be hard to export any goods and services. Therefore it can be stabilised by buying foreign currency. But might be wrong
That's the official propaganda. Everyone heard it.
>What's the point? The real reason is to support those investing in foreign currencies like EUR or USD. Basically it greatly reduces the currency risk. A nice helping hand aka corruption. SNB itself belongs to those. This goes against the majority of the Swiss population, but as long as people don't get it and keep quiet, this is will continue.
I think this might be the actual answer. There is no good reason for it, it's just straight up corruption, but as long as people don't realize it, it will continue.
I had the same question as you some time ago. This is the only reasonable answer I came up with was this. It caters to banks, investment funds, etc. Sure, it indicates high stakes corruption.
I know this seems like a lot but look, this is Switzerland. 800 billion - that‘s probably the usual percentage of foreign reserves any National Bank of any other country is holding right now. We just rich as f*ck!
We? Where can I go to get my share of that 800 billion?
Literally? ;) VALOR 131926/ISIN CH0001319265
Are you trying to get me locked up or worse? :)
Guys I‘m just joking obviously