Switzerland has a problem with the foreign exchange reserves of rich countries

(The author is a columnist for Reuters Breakingviews. The opinions expressed are his own.)

LONDON – Switzerland has a problem that some countries, like Turkey, would very much like: what to do with a huge pile of foreign exchange reserves.

After years of intervention in the foreign exchange markets to limit the strength of the franc, the Swiss National Bank has accumulated reserves of more than $ 1,000 billion, an amount greater than the country’s GDP. A group of academics on Wednesday suggested withdrawing some of the money from the central bank and putting it in a sovereign wealth fund, like Norway’s, which would invest for the long term and therefore could buy less liquid assets and more. profitable than the central bank can. hold on.

Academics are correct that the SNB, like its global peers, prefers to hold liquid assets that can be easily sold, even in times of financial crisis. Nonetheless, it is one of the few central banks to invest in stocks, including those of companies like Apple, Microsoft and Alphabet, which owns Google, and risky credit, rather than being limited to holding currencies and foreign government bonds. The breakdown of its asset allocation at the end of September shows that 23% are parked in equities.

A sovereign wealth fund would therefore have to take a lot more risk to beat the current yields of the SNB, leaving itself vulnerable to big losses if turbulence were to hit the financial markets. And there would be a host of other questions to answer, such as whether investments should align with environmentally friendly values ​​at a time when governments around the world are trying to tackle climate change.

Investing in illiquid assets could also make life for the SNB more difficult in the future. A sovereign wealth fund may find it difficult to quickly liquidate these assets and hand over money to the central bank if the SNB were to intervene massively to support the franc. Academics point out that this has not happened for decades, barring brief and limited episodes, and that the SNB could keep large foreign currency investments as a precautionary measure.

Despite this, the central bank rejected the idea and said on Wednesday that the withdrawal of foreign exchange reserves would interfere with its independence. While Swiss politicians might ignore this point of view, they would still struggle to find a way to both increase yields and maintain adequate reserves for potential interventions. The problems of rich countries remain problems.


– The Swiss National Bank is expected to convert its huge stock of foreign stocks and bonds into a sovereign wealth fund like Norway’s to support government spending, a group of economists said on December 15.

– The SNB’s campaign to limit the strength of the Swiss franc by intervening in the forex market saw the central bank rack up $ 1 trillion in foreign exchange investments, including stocks in companies like Apple and Alphabet, owner from Google.

(The author is a columnist for Reuters Breakingviews. The opinions expressed are his own.)

(Edited by Neil Unmack and Karen Kwok. Graphic by Vincent Flasseur.) ((For previous author columns, Reuters clients can click on PATTANAIK / SIGN UP FOR EMAIL ALERTS BREAKINGVIEWS https: // bit .ly / BVsubscribe | swaha.pattanaik @ thomsonreuters.com; Reuters messaging: [email protected]))

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