Swiss National Bank – A Central Bank Like No Other
Switzerland always played a special role in the world’s politics. Right at the heart of Europe, its neutrality makes it one of the most interesting countries in the world. And so is the Swiss National Bank.
This is a central bank like no other, one that almost destroyed online trading as we know it today, and one actively involved in domestic and international financial markets.
2015 and the EURCHF Saga
Back in 2015, the SNB was forced to drop its fixed exchange rate on the EURCHF. Up until January that year, it kept the rate to 1.20 minimum, vowing to defend the level no matter what.
As the ECB prepared to ease monetary conditions and cut the rates on the Euro, the SNB was forced to give up. It cost the bank tens of billions of Swiss Francs, and the online trading industry almost disappeared. Ever since that moment, brokerage houses offer negative balance protection, a policy designed to keep traders interested in the currency market.
What Makes the SNB Special?
To start with, the SNB is a listed stock on the Swiss stock exchange. Yes, its shares free float, just like any other corporation’s stock. The SNB is a unique mix between a central bank, a hedge fund but also a sovereign wealth fund. It holds various assets in its balance sheet, not only local assets but in particular foreign assets.
The SNB always fought a strong currency, the Swiss Franc. One way to diversify its balance sheet (just like a regular corporation) is to own foreign assets (i.e., participations in foreign companies). To buy those participations, the SNB must sell CHF and buy other currencies, therefore being actively engaged in the process of weakening the local currency.
Few people know that the SNB is one of the leading technology investors in the world. No less than 28% of its portfolio is dedicated to tech stocks like Apple (5.35%), Microsoft (4.96%), or Facebook (1.8%). Considering the 2020 rally in the tech stocks, we assume the SNB sits on a profitable portfolio, and there is no way the central bank gives up on its tech stake just for the sake of a small correction as we saw happening in the Nasdaq 100 index a couple of days ago.
To sum up, not all central banks are the same. The SNB surely deserves special attention as it is an active player in international financial markets.