Swiss National Bank Shows Q1 Profits of 21.3 Billion Francs
Switzerland’s central bank released information about its performance for the first half of 2016. The Swiss National Bank made a net profit of 21.3 billion Swiss Francs, equivalent to $21.8 billion, thanks to rises in gold prices and excellent profits made by investments in foreign currencies.
The gold holdings of the Swiss National Bank increased in value by 7.6 billion francs during Q1 2016 whereas the foreign currency investments increased by 13 billion francs. The bank also profited from the negative interest rate to the tune of 692 million francs.
There is a lot of demand for the Swiss Franc among investors because of the stability that it represents. The immense demand for the currency puts a lot of pressure on the currency pushing it upwards. It is predominantly to check this pressure that the bank has being buying up foreign currencies, equities, and bonds in very large quantities. As a matter of fact, the SNB’s burst of activity in the foreign exchange markets was intended to bring down the value of the franc from its spike in value brought about by Brexit fears. The bank also maintains a negative interest rate in order to reduce the franc’s attractiveness to investors.
Interestingly, the SNB had declared a loss for the same period last year. Its loss of 50 billion francs was brought about because the bank decided in January 2015 to leave its policy of limiting the franc against the Euro. This immediately resulted in the franc’s value shooting up and those of the bank’s foreign currency holdings dropping.
When the value of the franc climbs then it naturally drags down the value in francs of the various foreign currency purchases made by the SNB for the very purpose of weakening the currency. Exporters in Switzerland would find the going very tough if the currency is valued very high because it would make their goods too costly to afford.
Since the financial results of the SNB were dependent to a large extent on the capital, foreign exchange, and gold markets then it was only natural that strong fluctuations could take place. The bank also indicated that firm conclusions could not be drawn regarding its annual result at this point of time.
The main purpose of the SNB is to conduct the country’s monetary policy while also being a banker to the Swiss Confederation. It ensures that the wealthy and landlocked nation’s currency remains stable and that price fluctuations can be kept under control. As a matter of fact, the bank is not mandated to generate profits. However, the profits that are indeed made have to be apportioned between the central government and the individual cantons of which there are 26. The annual payments to the cantons can even bridge the gap between a deficit and surplus in the budget in a few instances. The 2015 losses sustained by the SNB did not affect its ability to pay the Swiss Government and the cantons since it had accumulated profits from previous years.
About The Swiss National Bank
Properly established sometime between January 1906 and June 1907, the Swiss National Bank (SNB) is the central bank of Switzerland. It is responsible for the monetary policy of Switzerland. One more responsibility that it undertakes is that of issuing Swiss franc banknotes. A fun fact: since Switzerland has four official languages, it has four different names each in German, French, Italian and Romansh. The SNB has two head offices, one in Zurich and the other in Bern.
Although the SNB has shown profits in Q1, it had reported a loss to the tune of £33 billion on 31 July 2015. Well, we must say that it has recovered quite well through its clever and strategic investments.