Latest SNB Intervention Update: Weekly Sight Deposits

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George Dorgan
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Overview:

Sight deposits are currently the by far most important means of financing for SNB currency purchases, for interventions. Sight deposits are assets for commercial banks, the Swiss confederation and other counterparties that deposit money at the SNB, but for the SNB they are liabilities, debt.
Sight deposits are always denominated in CHF. The SNB finances itself with Swiss Francs. With a rising CHF the debt relative to assets gets bigger, because the assets lose their value. As consequence the central bank may lose its Owner’s Equity that may lead to a bankruptcy or a recapitalization by the Swiss state.

The IMF-compliant weekly monetary data release on the SNB website provides the recent developments in sight deposits. With this weekly delivery it gives an far earlier indication of SNB interventions than the relatively late releases of balance sheet or IMF data.

Currency in circulation (bank notes and coins) is the second financing method, it represents the typical “money printing” of central bank debt. Nowadays this “bank notes printing” is far less important than the electronic printing of debt called “sight deposits”. Printing is the popular word for unsterilised central bank interventions that – at least for monetarists – paves the way for price inflation.

 Further definitions:

Sight Deposits of Swiss banks:  They are part of M0, the monetary base:
With the money multiplier effect, money on Swiss banks have a higher influence on Swiss lending and inflation. Therefore the two categories are separated. For monetarists, a big rise in Swiss sight deposits would be a bigger issue than the increase of the second item, which is:

“Other Sight Deposits” of other counter-parties with an account at the SNB.
Inside the monetary data release these include loans from the Swiss confederation and federal authorities like the state pension fund (In German “AHV”). Other counter parties are also insurances, private pension funds, settlement agencies, investment companies, foreign banks, foreign central banks and institutions. These other sight deposits are not part of M0, because they are not able to “multiple money” with loans to the public (no money multiplier effect).

Since December, sight deposits above a certain threshold are “punished” with negative rates.

Weekly SNB Intervention Watch: Sight Deposits

Headlines and Comments

The following headlines are added each week. They reflect the movement in the table above.

September 7:
No change of sight deposits this week, hence no SNB intervention. The speculative position against CHF has fallen again, hence some traders are buying CHF. Strangely EUR/CHF continues its ascent on September 7, despite the ECB threat with more QE.

Week to August 29th:

Shortly before January 15th, 2015, the speculative position was at it highest. Remember that all such carry trades – a strong speculative position that counters real money, collapse one day. In our view, the carry trade should continue until EUR/CHF reaches 1.10 or 1.15. The carry trade could run 3 to 5 years, before it should collapse again to EUR/CHF 0.90. Time for the SNB to collect some dividends and coupons to avoid a bankruptcy.

July 15th to August, 15th: Sight deposits have risen by 2.5 bln. in the course of one month. But a big speculative position is building up against CHF. Sight deposits do not capture these movements because they are not portfolio investments for the balance of payments. They happen at FX brokers.  But long-term investors still like Swiss stocks.

July 13th: Another 2.1 bln CHF of interventions, a deal with Greece is not yet achieved. Inflows mostly came from local banks  They seem not to fear negative rates. This delta in sight deposits, is probably punished by negative rates. But the SNB seems to be convinced to keep EUR/CHF over 1.04, without considering that many exporters (like pharma and chemicals) take advantage of the stronger dollar.

July 6th: Surprisingly only a small intervention of 1.4 bln. CHF during the Greek referendum week. Reasons might be that the European recovery still avoids inflation. See more in the two phases of CHF appreciation.

June 29th: Greek referendum announced and talks on Greek ended.  According to Forexlive.com, the SNB has intervened. For us, this must have been at the lower area of 1.0312 in Asian trade, but not at 1.04.

June: The pace of SNB intervention is slowing. Sight deposits rise by 0.5 billion francs per week.

April and May: Sight deposits rise by 1.5 billion CHF per week, hence the SNB seems to intervene with a pace of 1.5 billion francs weekly. Recently the SNB increased the loans with the Swiss confederation.

Between Feb 21 and April 3: No major change, no SNB interventions

The biweekly bigger IMF data release will contain infos about money supply, in particular M0, next issue is on May 14th.
The last one, the one for March, is the following:

George Dorgan (penname) predicted the end of the EUR/CHF at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.