Tag Archives: newsletter

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...

Marc Meyer argues that the Swiss National Bank must build up reserves, but this does not mean “foreign exchange reserves”, but “Swiss Franc reserves”. According to the constitution these reserves are owners’ equity denominated in Swiss Franc and some gold. Thomas Jordan’s famous paper “Does the SNB need equity” tries to overturn the constitution suggesting that the constitution accepts FX investments as “reserves”. Russia builds up foreign reserves with national resources, with equity, the...

After the strong revaluation of the Swiss franc in recent years, some economists, like the ones at the Swiss National Bank (SNB), claim that the franc is overvalued. Many use misleading Purchasing Power Parity (PPP) measures like the Big Mac index, the OECD index or the PPP based on consumer prices for computing fair values. The second big mistake is to compute the Real Effective Exchange Rate (REER) with the wrong “base year”, i.e. to assume that in 1999 the CHF was correctly valued. The...

Acket: “Too much transparency is working against the SNB” Julius Baer Group Chief Economist Janwillem Acket argues today that by publishing weekly sight deposits, the SNB is telling the market too much. A more-mysterious SNB is a fresh option for a central bank that appears out of ideas. He also argues that using a basket of currencies, rather than the euro would allow them more flexibility. He points to Singapore as a successful example. Comment by Adam Button, Forex Live EUR/CHF...

According to the latest news release, the Swiss National Bank expects an annual loss of 23 billion CHF, after reporting a loss of 50 billion at the end of June. Primarily thanks to the stronger dollar, the SNB was able to achieve unrealized gains of 27 billion CHF in the second half. This reduced her annual loss to 23 billion. With its rate hike, Fed is helping the SNB: the dollar has appreciated by 6% since July. Balance Sheet The SNB balance sheet looks as follows. In this post we...

Dear Prime Minister Alexis Tsipras, First, congratulations for mustering the popular support to say “no” to the troika. The euro has long offered Greece a perverse incentive to borrow, and now your country is trapped in debt. By any conventional means, Greece cannot repay (I propose an unconventional way, below). The sooner everyone acknowledges this simple fact the better. While I don’t claim to know why you agreed to a bailout deal this weekend, I can guess. The troika threatened to...

By inflation, I don’t refer to rising consumer prices in Athens. My Greek friends tell me that prices have been steady there in recent years. The focus on prices is the greatest sleight of hand ever perpetrated. It diverts your attention away from the real action. Inflation is the counterfeiting of credit. It is borrowing, when you can’t pay and you know it. Inflation is taking money under false pretenses, and issuing fraudulent bonds. This describes the Greek finances perfectly. Greece...

Retail data shows that the SNB peg removal in January 2015 as early as April 2015 with minimal adverse impact on the economy. Trade surplus showed that Switzerland had fully recovered its lost trade surplus in May and expectations crossed an important threshold into positive territory in June. CHF strengthened since May end, as the market caught wind of the Swiss recovery, and the Grexit would further strengthen the CHF if it were to occur....

One of the first to use the word “euro glut” was Deutsche Bank’s George Saravelos. His idea of the euro glut is that European banks and investors drive the euro down despite the massive European current account surplus and the high European household savings rates of 12% compared to 4% in the US. Saravelos argues that ECB easing will lead to some of the “largest capital outflows in the history of financial markets”. This would counter the “European savings glut” created by savings and...

George Dorgan shows that Gross Domestic Product (GDP) is a measurement in the local currency. Effectively, Swiss real GDP rose by 15% in Euro terms, but fell slightly in CHF. He also emphasizes that Switzerland needs a big rebalancing of its economy, away from exports towards consumption. The Swiss National Bank was right to remove the euro peg. The move towards consumption is only possible when the Swiss franc is stronger because consumers will profit on...