What is the Swiss National Bank
The Swiss National Bank is the bank responsible for setting Switzerland's monetary policy and is an independent central bank. Its primary function is to ensure price stability within the country and create an economic environment conducive to economic growth and development for Switzerland.
The bank is also responsible for issuing Swiss francs, the currency of Switzerland. Investors generally consider Swiss francs a haven asset and purchase them as a way to protect their money from risks related to economic turmoil.
BREAKING DOWN Swiss National Bank
The Swiss National Bank has offices in Basel, Geneva, and Zurich and officially opened for business on June 20, 1907. In 1910, the Swiss National Bank became the sole maker of the Swiss banknote, and in 1991, it received permission to be a member of the International Monetary Fund (IMF). The Swiss National Bank is also responsible for managing Switzerland's gold reserves, which were worth 30.5 billion Swiss Franc in July 2008.
Unlike many other national banks, the Swiss National Bank issues shares to private investors. In 2017, individual shareholders owned 23.6 percent of the bank. Cantons, the Swiss equivalent of a state, and state-owned banks hold about 55% of the shares. Remaining shares trade on the Swiss Stock Exchange under the symbol SNBN. In the U. S. the stock trades on the over-the-counter market as SWZNF.
Money Supply and the Swiss National Bank
In May 2018, one Swiss franc was equal in value to 1 US dollar, though the currencies do not peg to one another. Between 2011 and 2015, the Swiss franc pegged to the euro (EUR) at 1.2 francs per euro. However, these values changed in 2015, when the bank announced that the franc would no longer carry an equivalent value to the euro. At that point, the value of the franc began to soar. To illustrate just how much the SNBN shares soared, between July 2017 and July 2018 the per share price rose by over US$3,000.
Switzerland operates on a fractional reserve system. With such a system, while the banks still have to meet requirements to keep a designated amount of cash-on-hand, only a fraction of bank deposits are backed by actual cash or assets available for withdrawal. In essence, the bank is creating money as they lend out more cash than what is physically in their vaults. The Swiss National Bank accounts for around 10 percent of the country's supply of money, with the rest created by lenders in the form of credit.
However, in June 2018 Switzerland voted on a referendum, known as the Vollgeld initiative, to end the ability of lenders to write loans for more funds then they hold. Fears circulated that if the vote succeeded, it would cause a financial panic or a Brexit event. Others feared the passage would place too much power in the hands of the central bank.
The referendum failed, with three-quarters of the population voting against any changes to the current policy.