SNB to open Singapore branch to help enforce currency floor

By:
Peter Garnham
Published on:

The Swiss National Bank (SNB) has announced plans to open a Singapore office to help it manage its huge FX reserves and enforce the minimum exchange rate it imposed in EURCHF.

In a sign that the central bank does not expect the upward pressure on its currency to diminish any time soon, the SNB says a local presence in Asia will “facilitate its round-the-clock operations on the foreign exchange market â€" for example, to enforce the minimum exchange rateâ€.

The SNB introduced the floor in September 2011 in a bid to shield its export sector from a rising Swiss franc, which was being pushed to record levels as investors sought a haven from the eurozone sovereign debt crisis.

Since then, the SNB’s foreign exchange reserves have rocketed higher, standing at more than SFr400 billion, or nearly 70% of Swiss GDP. The SNB warned last month that managing those reserves was a substantial challenge.

The SNB says a presence in Asia will also help it reduce the concentration risk in its reserves.

“The SNB aims for a broad diversification of its investments, and has turned to new markets as a result,†the central bank says. “Asia’s economic importance has grown considerably in recent years, as have its bond and stock markets.â€

In 2010, the SNB expanded its basket of reserve currencies to include the AUD and SGD in addition to the JPY. Since the first quarter of 2012, it has also been investing in the KRW.

“Further investment opportunities are also being examined â€" this includes both bonds and equities,†the central bank says.

The SNB says Singapore, as one of the largest financial marketplaces in southeast Asia and with its geographical proximity to a number of emerging economies, is an ideal location for its Asian branch.

“A sound infrastructure and a stable legal environment also provide good conditions for smooth operations,†the central bank adds.

The branch is scheduled to open in mid-February and will have seven members of staff.