What Is the Swiss National Bank?
- The Swiss National Bank (SNB) is the central bank of Switzerland and is responsible for setting that country's monetary policy and issuing its currency, the Swiss franc (CHF).
- The Swiss National Bank has offices in Basel, Geneva, and Zurich and officially opened for business on June 20, 1907.
- The Swiss National Bank's primary function is to ensure price stability within the country and create an economic environment conducive to optimal economic growth and development for Switzerland.
Understanding the Swiss National Bank
The Swiss National Bank's primary function is to ensure price stability within the country and create an economic environment conducive to optimal economic growth and development for Switzerland.
The Swiss National Bank is also responsible for issuing Swiss francs, the currency of Switzerland. Investors generally regard Swiss francs as the preferred destination (safe-haven asset) during times of economic and geopolitical turmoil and purchase them as a way to protect their money from risks related to said event. As of Sept. 20, 2019, one U.S. dollar (USD) is equal to 0.99 Swiss francs (CHF) and the currencies are not pegged to one another.
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 francs in July 2008.
Unlike many other national banks, the Swiss National Bank issues shares to private investors. In 2017, individual shareholders owned 23.6% 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 (OTC) market as SWZNF.
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% 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 than they hold. Fears circulated that if the vote succeeded, it would cause a financial panic or a Brexit type 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.
Swiss National Bank and the EUR/CHF Peg
Between 2011 and 2015, the Swiss National Bank did peg the CHF to the euro (EUR) at the exchange rate of 1.2 CHF per 1 EUR. However, these values changed dramatically on Jan. 15, 2015, when the SNB announced that they had removed the peg. What ensued was mayhem in the foreign exchange markets as the CHF appreciated across the board, especially versus the euro, where it surged by about 30% in a matter of mere moments.