3 ms·

It always seemed such a bad idea to me in the first place. If an actor is so predictable in the market, how can you prevent other people from benefiting from it

by zimbatm 12y ago

It always seemed such a bad idea to me in the first place. If an actor is so predictable in the market, how can you prevent other people from benefiting from it ? Pump&dump. > It introduced the cap in September 2011 and, in 2012, spent $199 billion defending the minimum rate. Wow, spending almost 1/3 of the GDP of 2012 to maintain the EUR/CHF ratio ( http://www.wolframalpha.com/share/clip?f=d41d8cd98f00b204e9800998ecf8427e71hk3ft38s http://www.wolframalpha.com/share/clip?f=d41d8cd98f00b204e98... ). I hope it was worth it.

iSnow 12y ago
Well, the $199bn are not spent in the sense they are gone. The SNB of course now holds Dollars and Euros it bought with Franken. Of course, if the Franken now appreciates, they are taking a loss on those Dollars and Euros.
ddeck 12y ago
To be clear, the SNB is not "spending" money. They were intervening to prevent the CHF from appreciating, not the reverse. In this situation, they (as the central bank) are creating new money (CHF), which they sell to anyone who wants to purchase them for EUR1.20 each. The result of this is to accumulate enormous amounts of EUR, which is typically used to purchase EUR area government securities. The SNB actually made a profit of CHF 38 billion in 2014 from price changes/interest on the securities they hold as well as FX gains. [1] They of course will now be taking significant losses on those foreign currency assets as the CHF appreciates. [1] http://bigstory.ap.org/article/eaafe09a860f4b09abc789fe6f5d26f5/swiss-central-bank-reports-profit-38-billion-swiss-francs http://bigstory.ap.org/article/eaafe09a860f4b09abc789fe6f5d2...
- branchless 12y ago
  you de man
- Keyframe 12y ago
  On the other hand, SNB now has a decent-sized mountain of Euros to sell.
  - ddeck 12y ago
    The actual size of the SNBs EUR holdings hasn't grown that much (EUR174 bn in Q3 2014 from EUR90 bn in 2010) and EUR allocation has actually reduced (to 45% from 55% over the same period) [1]. I believe the most recent comments by the ECB also indicate that they have no immediate plans to reduce reserves. With a JPMorgan analyst suggesting a few days ago that a size for the expected ECB QE program of EUR500 million is missing a zero, it's likely not going to be too difficult to find a buyer if they did decide to do so. [1] http://www.snb.ch/ext/stats/balsnb/pdf/deen/A3_2_Devisenanlagen_der_SNB.pdf http://www.snb.ch/ext/stats/balsnb/pdf/deen/A3_2_Devisenanla...
pjc50 12y ago
That buys them a lot of Euros, and stabilised the very large part of the Swiss economy that's dependent on financial services. This includes CHF-denominated Hungarian mortgages, which may now start defaulting again http://ftalphaville.ft.com/2011/08/03/642281/oh-schweizer/ http://ftalphaville.ft.com/2011/08/03/642281/oh-schweizer/ (2011)

by zimbatm 12y ago

iSnow 12y ago

Well, the $199bn are not spent in the sense they are gone. The SNB of course now holds Dollars and Euros it bought with Franken. Of course, if the Franken now appreciates, they are taking a loss on those Dollars and Euros.

ddeck 12y ago

To be clear, the SNB is not "spending" money. They were intervening to prevent the CHF from appreciating, not the reverse. In this situation, they (as the central bank) are creating new money (CHF), which they sell to anyone who wants to purchase them for EUR1.20 each. The result of this is to accumulate enormous amounts of EUR, which is typically used to purchase EUR area government securities. The SNB actually made a profit of CHF 38 billion in 2014 from price changes/interest on the securities they hold as well as FX gains. [1] They of course will now be taking significant losses on those foreign currency assets as the CHF appreciates. [1] http://bigstory.ap.org/article/eaafe09a860f4b09abc789fe6f5d26f5/swiss-central-bank-reports-profit-38-billion-swiss-francs http://bigstory.ap.org/article/eaafe09a860f4b09abc789fe6f5d2...

branchless 12y ago
you de man
Keyframe 12y ago
On the other hand, SNB now has a decent-sized mountain of Euros to sell.
- ddeck 12y ago
  The actual size of the SNBs EUR holdings hasn't grown that much (EUR174 bn in Q3 2014 from EUR90 bn in 2010) and EUR allocation has actually reduced (to 45% from 55% over the same period) [1]. I believe the most recent comments by the ECB also indicate that they have no immediate plans to reduce reserves. With a JPMorgan analyst suggesting a few days ago that a size for the expected ECB QE program of EUR500 million is missing a zero, it's likely not going to be too difficult to find a buyer if they did decide to do so. [1] http://www.snb.ch/ext/stats/balsnb/pdf/deen/A3_2_Devisenanlagen_der_SNB.pdf http://www.snb.ch/ext/stats/balsnb/pdf/deen/A3_2_Devisenanla...

pjc50 12y ago

That buys them a lot of Euros, and stabilised the very large part of the Swiss economy that's dependent on financial services. This includes CHF-denominated Hungarian mortgages, which may now start defaulting again http://ftalphaville.ft.com/2011/08/03/642281/oh-schweizer/ http://ftalphaville.ft.com/2011/08/03/642281/oh-schweizer/ (2011)