SNB Under Pressure from New Lobby Group

SNB Under Pressure from New Lobby Group

30 August 2019

The Swiss National Bank hasn’t had easy life recently – it is under pressure from market experts to act in a bid to stop the appreciation of Swiss franc, and now additionally a new powerful lobby group wants it to hand over some money collected from commercial banks to the state-pension organization.

Pressures on the SNB

The Federal Reserve already cut rates for the first time in many years and is supposed to cut them even more by the end of the year. Also, the European Central Bank is highly expected to cut interest rates in September. It is no wonder then that market experts would like to see the SNB follow suit. Especially that the Swiss currency is highly overvalued due to economic and geopolitical turmoil in the world. Investors turn to safe haven assets and they more eagerly buy Swiss francs nowadays. As a result CHF experienced some great gains in the exchange rate euro franc in the first half of the year. Economists agree that the appreciation of Swiss franc and slowing economy in the country and on the continent have to lead to intervention from the SNB. The Swiss central bank can either cut further already negative rates or intervene on the currency market. Or it can do both.

State Pension Is Struggling

One of the organizations that is highly influenced by the current situation is a state-pension institution AHV. It has been struggling to make a profit as an investor. It is due to target rate that has been negative for last five years. As a result, commercial banks have to pay interest for holding cash at the SNB and investors, like AHV, can’t make profits. The state-pension organization urgently needs more money to be able to fulfill its obligations. Especially that the nation is aging, and more and more money is needed to pay pensions.

New Lobby Group

The Association of Swiss Taxpayers figured out that the great solution would be forcing the SNB to hand over money collected from commercial banks – paid by them for cash holdings – to the state pension fund. The group’s president is Alfred Heer, also the lawmaker for the Swiss People’s Party. He plans to make an alliance with left-wing parties in order to improve chances his project is accepted. Such right- and left-wing alliance would be a very strong one and the SNB would have to really think over its move once it is formally called to act.

Such proposal will certainly gain popularity in the nation, as money handed to the state pension would not come from people’s pockets directly. There will be no additional taxes or deduction from salaries, just money moved from the SNB account to the AHV one. It is worth to mention though, that if rates are no longer negative, such move would not provide any resources. In the scenario of positive interest rates, commercial banks don’t have to pay for their holdings.

Can the SNB Give Away the Money?

Obviously the SNB have money to give away – it reported profit of 1.1 billion Swiss francs, which was mainly due to negative interest rates and incomes from commercial banks. The central bank of Switzerland gives to the federal and cantonal governments each year a maximum amount of 2 billion Swiss francs – the exact sum depends on its financial situation in the given year. Generally, the SNB tries not to get into politics. Sometimes it is forced to explain its stance on given matters when its management feels its independence is being attacked by political parties. On many occasions the SNB stated that its sole aim is to use instruments for purposes of monetary policy – nothing less, nothing more.

At the moment we are still dealing with a strong Swiss franc. How long this situation lasts is uncertain If you want to change money, we recommend that you use our currency converter to compare current exchange rates.