24 Apr It is time for the SNB to pull the handbrake

When central banks intervene in the currency market, by making it known in the media, it is almost always to buy their national currency on the foreign exchange market, and prevent it from rapid and violent falls. Regarding the Swiss National Bank (SNB), since the beginning of this century at least, it intervenes always on the contrary, by selling Swiss francs, making it known or not, to slow the rise in its parity to other currencies. Apart from the abrupt, irresponsible and unforgivable abandonment of the fixed parity vis-à-vis the EURO at 1.20 in 2015, which has caused an uncontrollable rise in the franc of around 30% in a few days, the policy of the SNB is generally applauded.

It is widely believed that institutional investors and foreign individuals buy our currency because they trust the Swiss stability. I rather think they are buying an incredibly overvalued franc, because they do not have enough confidence to keep everything in their own national currencies.

Today the SNB sits on a mountain of foreign currency reserves of around 700 billion equivalents to our francs, almost 40% in EURO and 35% in USD.

The coronavirus crisis will give birth to a new era, which no one has properly forecasted, and no one today knows how to assess its impact with precision on the world economy.

However, it is reasonable to believe that with the stratospheric increase in trillions of the indebtedness of large countries, the major currencies are doomed to lose of their value more during and after the crisis.

This accumulation of foreign currencies by the SNB could backfire on us, in the event of massive, voluntary or involuntary devaluations, of one or the two main currencies in the Free World.

In my opinion, the SNB should henceforth astrain non-resident investors to combine the purchase of our currency by the selling of “call options” in favour of the SNB, allowing it to buy back at any time the CHF from the foreign investor, at the same price.

Thus, the Swiss franc will no longer be a safe haven currency for new investors, and those who buy it for just this reason will no longer have any interest. Of course, setting up such a mechanism is not simple, but feasible. This cannot concern buyers of Swiss services, intangible services and goods.

Furthermore, to help weaken the CHF, the Confederation should take control of at least half of the SNB’s foreign currency reserves, to create a Sovereign Fund, which will have an innovative and long-term investment policy, not necessarily in the global stock market sphere. For example, by investing in the purchase of certain rare metals and agricultural lands in other continents, to ensure the strategic and food supply of our country.