RESTRICTED  
  
WT/BFA/W/394  
 
10 June 2016  
(16-3160)  Page: 1/3  
 Committee on Budget, Finance and Administration   
 
 CHANGES TO THE WTO TREASURY  MANAGEMENT POLICY IN  
A NEGATIVE INTEREST ENVIRONMENT 
 
1   INTRODUCTION 
1.1.  The current Treasury Management Policy st ipulates that WTO funds should exclusively be 
invested in cash or money market instruments.   
1.2.  The WTO currently has an overall ca sh position approximating CHF 160 million. 
1.3.  Since 31st March 2015, the WTO's main banks have in troduced a negative interest rate of 
0.75% per annum, in keeping with the monetary policy adjustments by the Swiss National Bank.  According to the projection of the banks, the situation of negative interest will persist for the next 
4-5 years. Therefore, a concerted effort should be made to stem the outflow of funds due to 
negative interest.  
1.4.  During the course of 2015, the WTO cash  balance fluctuated between CHF 100 million and 
160 million, driven by the timing of receipts of contributions from Member States. As at 
31 December 2015, the cash position was CHF 120 million.   
1.5.  The WTO has negotiated exemptions from nega tive interest for up to CHF 70 million with UBS 
and up to CHF 40 million with "Crédit Suisse". With these thresholds, the negative interest payable 
by the WTO approximates CHF 400,000 per annum, ba sed on the average cash balances for 2015.  
1.6.  The WTO banking service providers can unila terally alter the threshold amounts exempt from 
negative interest, at any time.  The risk to the WTO is that were the thresholds to be completely 
eliminated then the negative interest outflow could grow to CHF 1 million per annum, assuming 
that the current rate of interest of -0.75% per annum remains stagnant.   
1.7.  In order to mitigate the above-mentioned risk, we are proposing the attached revised 
Treasury Management Policy for your consideration and approval.   
2  PROPOSED ACTIONS 2.1  Investment in Money Market instruments 
2.1.  Under the current market conditions, this does  not enable the organization to earn a positive 
return, but can limit the negative result compared to the negative interest charged on the current 
account. 
2.2  Accepting negative interest on the current account and counterbalancing it by 
investing in USD 
2.2.  For the time being, the USD represents the only currency held by the WTO under which a 
positive return on investment is possible.  
2.3.  Under the current policy, the currency limits for USD holdings by the WTO amount to 
USD 5 million. This was informed by the annual USD commitments in 2010. WT/BFA/W/394 
 
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  2.4.  Since 2010, the annual expenditure in US D has more than doubled and amounted to 
USD 10 million in 2015.  The reason for this increase is that a lot of technical assistance activities, which were formerly paid in EUR, are now paid in USD.  
2.5.  Therefore, the holding of a higher amount of  USD is justifiable. In order to meet the needs 
over the year, the USD could be invested over  several time periods (3-months to 1 year). 
2.6.  This could offset a certain part of the negative interest generated under the CHF. Under the 
current conditions, an increase of the USD balance held to USD 15 million could offset around 30 -
 35% of the negative interest in CHF.  
3  RISKS 3.1.  The risk of a money market operation equals the default risk of the bank. The WTO works 
with the two main Swiss banks, UBS and Credit Suisse. 
3.2.  The risk of holding higher amounts in USD corresponds to a currency risk, a variation in the 
exchange rate between USD/CHF. 
3.3.  The risk of not taking any action is to accept the payment of close to CHF 400,000
1 of 
negative interest per year, if the conditions do not change. 
4  CHANGE IN TREASURY POLICY FOR FUTURE INVESTMENTS IN A NEGATIVE INTEREST 
ENVIRONMENT 
4.1.  The main changes, relative to the current version of the Treasury Management policy (which 
has been in effect since 16 September 2013) are summarized below: 
4.2.  4.1 Adjust the minimum credit rating of banks from A+ to A-  (S&P, Fitch, A3 for Moody's):- 
this will slightly broaden the investment options since ratings have been coming down given the 
current economic environment. 
4.3.  Increase the maximum term to maturity of bank term deposits and other investments 
from 24 months to 36 months  (especially for the Working Capital Fund), as this generates higher 
returns. 
4.4.  Increase the overall limits held in USD from USD 5 million to a maximum of 
USD 15 million :- this new amount is based on the forecast expenditures in USD for 2016, plus 
50%, to allow for some positive interest to be ea rned on the USD amounts.  This limit is prudent 
because it not a significant percentage of the overall cash holdings, thus limiting exchange rate risks. 
4.5.  Keep the limits agreed in 2010 for the two other WTO currencies: 
 
Currency Min. threshold Target point Max. 
threshold  USD 500,000 7,000,000 15,000,000 
EUR 200,000 500,000 1,000,000 
GBP 30,000 150,000 300,000 
 
4.6.  Vary the allowable asset allocation from 100% cash and bank term deposits with, a maximum  tenor of 24 months, to that in the table below, which includes investment in high quality bonds with a minimum rating of A- and a term to maturity of up to 5 years. 
                                               
1 Based on average historic cash balances for 1 year. WT/BFA/W/394 
 
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  Asset classes* % to be held 
Cash and Cash equivalents, minimum of 70% 
Bonds up to a maximum of 30% 
Equities 0% 
*  Investment in hedge  funds, derivatives and alternat ive asset classes is prohibited. 
 
4.7.  The effect of the above change is that the ne gative interest will be reduced. Using the current 
cash position of CHF 160 million, the asset allocati on and interest implications would be as per the 
table below: 
Asset classes % to be 
held Amount (in 
CHF) Interest Rate 
(% p.a.) Interest Amount 
(CHF) 
USD Cash (USD 15 million) 9% 14,870,000 0.80% 118,960 
Bonds  30% 48,000,000 -0.50% -240,000 
CHF Cash 61% 97,130,000 0% - 
Total Assets 100%  160,000,000  N/A -121,040  
 4.8.  Therefore, the negative interest woul d be muted from CHF 400,000 to CHF 121,040 for a 
period of one year.   
N.B. Currently, Swiss Confederation bonds up to a term to maturity of 10-years yield -0.26%. The 
inference is that the yield on bonds with a term to maturity of 5 years would approximate- 0.50%.  
 
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