Thomas Jordan: SNB monetary and investment policy and the impact of
the strong Swiss franc
Summary of a speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss
National Bank, at the Volkswirtschaftliche Gesellschaft des Kantons Bern, Berne,
28 November 2012.
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The complete speech can be found in German on the Swiss National Bank's website (www.snb.ch).
As part of measures to combat the financial and economic crisis, balance sheets of central
banks around the world have expanded substantially. In 2009 and 2010, the Swiss National
Bank (SNB) intervened in the foreign exchange market in order to combat an excessive
appreciation of the Swiss franc. On 6 September 2011, it set a minimum exchange rate of
CHF 1.20 per euro, in order to avert major damage to the Swiss economy. Since then, the
SNB has enforced this minimum rate with determination and is prepared to buy foreign
currency in unlimited quantities. This monetary policy is reflected in a very substantial
expansion in its balance sheet. It has also altered the importance of the currency reserves
and had an impact on the SNB's investment policy.
In view of its mandate, monetary policy has priority at the SNB. Investment policy must be
subordinated to the requirements of monetary policy. It is at the service of monetary policy
and may not limit its room for manoeuvre. At present, enforcement of the minimum exchange
rate has the greatest influence in the management of the currency reserves. The task is to
diversify a large foreign currency portfolio according to the criteria of liquidity, security and
return. Even in these extreme circumstances, the SNB's investment policy and process have
proved resilient. The investment skills we have developed over the past 15 years, together
with our flexibility regarding investment categories allow for the smooth absorption even of
large inflows from foreign exchange purchases. The principles upon which our investment
policy is based have proved their worth.
The idea of a sovereign wealth fund for better management of the SNB's currency reserves
has attracted some public interest. However, a sovereign wealth fund would not facilitate
monetary policy with regard to the enforcement of the minimum exchange rate. Moreover,
advocates of a sovereign wealth fund often have unrealistically high expectations, not least
as regards returns. But the most important point is that the current size and composition of
the central bank balance sheet are a direct reflection of monetary policy. The SNB's
investment requirements are derived directly from money creation and not from other
revenue sources. If limitations were placed on the SNB balance sheet, its room for
manoeuvre in the monetary policy domain would be restricted.
Due to the accumulation of currency reserves that have resulted from monetary policy
measures, there are substantial risks weighing on the SNB balance sheet. Consequently,
fluctuations in value may be much greater in future than they have been in the past. In
addition, the relationship between equity and currency reserves has worsened. To ensure
that the SNB can fulfil its mandate in the long term, without any restriction, in the interests of
the country as a whole, particular attention is given to its capital base through a prudent
provisioning policy.