current account surplus, speech held at the peterson institute for international economics, washington d. c., 8 october 2013. bis central bankers ’ speeches this changed fundamentally after the beginning of the global financial crisis in 2008. uncertainty increased noticeably. swiss companies were no longer investing their earnings from export business abroad to the same extent, and were instead increasingly repatriating them. moreover, a growing number of investors, including institutional investors and private banks, sought the security of switzerland. consequently, demand for swiss francs rose rapidly so that the swiss franc, at times, was overvalued to an extreme degree. to counter the strength of the swiss franc, the snb began purchasing foreign currency against swiss francs in the foreign exchange market. in statistical terms, this meant it was exporting capital, with the result that public sector capital exports increased. this can be seen from the blue bars in the chart. without these interventions, the swiss franc would have appreciated even more, with correspondingly negative consequences for the economy and for price stability in switzerland. this also means that, with its foreign currency purchases, the snb has, for some time now, taken onto its own balance sheet the currency risk which the private sector is no longer willing to bear. when we purchase foreign currency against swiss francs, it is shown on the assets side of the balance sheet as the most important element in the foreign currency investments item. in slide 3, it is denoted by the light blue area. 2 our foreign currency purchases also lead to an increase in swiss franc liquidity, i. e. a rise in the monetary base, which is reflected on the liabilities side of the balance sheet in the bank sight deposits item. in the chart this can be seen as a red area. thus, the snb ’ s foreign exchange reserves do not represent equity, or ‘ true ’ assets since they are offset by liabilities. they have come about through money creation as part of measures required for monetary policy purposes. consequently, they should be at the disposal of monetary policy at all times. for instance, when capital flows normalise sustainably, we can assume that the snb balance sheet total can be reduced again in the long term. however, the level of snb foreign currency investments will remain high for as long as required by monetary policy. if necessary and reasonable from a monetary policy point of view and if the benefits exceed the costs, the snb will further expand its balance sheet in future and

andrea m maechler : investment policy in times of high foreign exchange reserves speech by ms andrea m maechler, member of the governing board of the swiss national bank, at the money market event, zurich, 31 march 2016. * * * the accompanying charts can also be found on the swiss national bank ’ website. the speaker would like to thank dirk faltin and marco huwiler for their support in drafting this speech. she also extends thanks to sophie faber, peter kuster, sandro streit, jonas stulz and martin weder for helpful comments, to the snb language services, and to adrian avdyli for preparing the data. welcome to the snb ’ s traditional money market event in zurich. i am delighted that so many of you have responded to our invitation. a year ago, you were welcomed here by fritz zurbrugg, my colleague in the governing board and predecessor as the head of department iii. it was only a few weeks after the minimum exchange rate had been discontinued, and monetary policy was the hottest topic in town. this year, i will focus on the swiss national bank ’ s investment policy. in the past few years, the snb has become a big asset manager. consequently, i want to look at two questions today. first, what are the reasons for the significant increase in our foreign currency investments? second, how does the snb handle these foreign currency investments? however, i can ’ t leave monetary policy out completely. i will thus comment on our current monetary policy at the end of my speech. balance sheet expands due to measures against strong swiss franc in the past few years, the snb ’ s balance sheet total has risen sharply. since the onset of the global financial crisis in 2008, it has multiplied by a factor of six. at the end of last year, it came to around chf 640 billion, or almost exactly the value added by the swiss economy in 2015. the growth in the balance sheet total is attributable to a rise in swiss franc liquidity and an expansion of our foreign currency investments. this brings me to my first question : how did the increase in foreign currency investments come about? the short answer is that it is the result of monetary policy measures which the snb takes to maintain appropriate monetary conditions in switzerland. thus, foreign exchange market interventions, which the snb has been using to counter the appreciation of the swiss franc since spring 2009, have led