The central bank, as expected, reiterated its commitment to defend the SFr1.20 floor in EURCHF by all means necessary after its policy meeting. SNB chairman Thomas Jordan says the bank stood ready to “take further measures at any time” to prevent another appreciation of the Swiss franc from damaging the country’s economy.
So far, so predictable, and there are plenty of people willing to bet that the upward pressure on the franc will continue as Greek elections loom and investors continue to pour funds into the Alpine state in search of safety.
That means the SNB’s FX reserves, which shot up by SFr68 billion to SFr304 billion in May, should continue to grow as it is forced to buy EURCHF and, in turn, diversify those euro holdings into other currencies.
On that note, Jordan did have something interesting to say, noting the vocal public discussion in Switzerland over whether the state should establish a sovereign wealth fund to manage its stockpiles.
He says, to diversify its investments further, in 2010 the SNB included additional currencies such as the AUD and SGD, as well as the SEK and DKK, in its investment universe.
Since the first quarter of 2012, the SNB has also been investing in the Korean won.
“Additional investment opportunities in the advanced and emerging economies are continually being evaluated, both for bonds and for shares, although this is subject to an adequate level of liquidity in the markets in question,” he adds.
Jordan says while the idea of a sovereign wealth fund might appear attractive at first glance, in the current situation it would do little to assist Switzerland or Swiss monetary policy.
He rightly points out that the sovereign wealth funds in Norway and oil-producing states cannot serve as models for the management of the SNB’s currency reserves, as they invest state income derived from commodity exports.
“A Swiss sovereign wealth fund funded from SNB foreign exchange, by contrast, would be financed through money creation,” says Jordan.
The SNB, in other words, wants the problems of having to manage its currency reserves off its hands as soon as possible. No doubt it hopes the Greek election this weekend will not give money managers new reason to buy the franc.
Otherwise, it might have to take one of those "further measures" and introduce capital controls.