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SNB Spent CHF110 Billion on Forex Interventions in 2020

SNB Spent CHF110 Billion on Forex Interventions in 2020

23 March 2021

The Swiss National Bank has announced it spent CHF110 billion on foreign currency interventions last year, the highest level since 2011.

 

Foreign Interventions to waken Euro Swiss Fanc exchange rate

                Last year, the SNB has spent as much as CHF110 billion (around USD118 billion a per average CHF exchange rate against USD) on interventions on foreign currencies market, as it tried to stop CHF from appreciating. It was the highest level of interventions since 2012, and much more than CHF13.2 billion value spent in 2019. Data was published in the central bank’s annual report on Monday, March 22nd, 2021.

 

SNB’s Increased Balance Sheet

                Due to the increase spending, the SNB’s balance sheet closed 2020 with amount of nearly CHF1 trillion, much larger than total size of the Swiss economy. Its total assets at the end of 2020 were at CHF999 billion level versus CHF861 billion one year before. Currency reserves were valued at CHF962 billion at the end of 2020, with majority (91%) of them foreign currency investments – nearly CHF914 billion, and 5% of those kept in gold.  In a period from January 2015, when the SNB suddenly canceled its policy of pegging the Swiss franc exchange rate to euro’s one, to January 2021 its balance sheet expanded from CHF558 billion to CHF998 billion. “The SNB has sufficient scope for expanding its balance sheet further, should this be necessary for monetary policy reasons,” a spokesman for the SNB told Reuters in a comment on the publication of the annual report and its data.

 

EUR CHF Exchange rate low due to investors buying Swiss Francs

                The bank has significantly reduced its interventions in the second half of the year, but still the total amount for 2020 was impressive. It was due to the pandemic and higher demand for safe-haven assets, like Swiss franc. Investor were eager to buy Swiss francs which triggered very strong exchange rate of this currency. “Appreciation pressure on the Swiss franc, which was particularly high in the first half of the year due to uncertainty surrounding the pandemic, necessitated CHF90 billion in interventions during that period. Pressure on the Swiss franc decreased in the second half of the year, meaning that fewer interventions were required,” the SNB wrote in its annual report.

 

Currency Manipulator

                News of very high level of interventions on foreign exchange rate market came as just in December Switzerland was labeled a currency manipulator by the US Treasury. The reason were extensive interventions on forex market. The central bank vowed to keep its policy, nevertheless. Policymakers claim this is necessary to stop CHF exchange rate from getting too high, which is hurting the Swiss export-relying economy. “Foreign exchange market interventions and the associated expansion of the balance sheet are currently a necessary monetary policy instrument and have nothing to do with currency manipulation” – it was added in an annual report. Bilateral talks between Switzerland and US on the matter of a currency manipulator label are supposed to be undertaken.

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