$7 Million a Minute

Bruce Krasting's picture

The Swiss National Bank (SNB) intervened in support of its 1.2000 currency peg against the Euro to the tune of CHF 60 billion ($66B) in the month of May. The vast majority of this intervention occurred during European trading hours. That means that the SNB bought, on average, the equivalent of $7mm worth of Euros every minute during the month. That’s a staggering number to me.

I was aware that there was ongoing intervention. I thought it would end up being a big number. At one point late in the month I was advised that a big American bank dropped Euro 7B on the SNB in a single ticket (think Cetacea). But I’m blown out by the 28% increase in reserves in a single month.

The SNB was clearly concerned with its rapidly growing holdings of Euros. In an effort to diversify its newly acquired Euro reserves it sold Euro 25B and bought dollars, Yen, Sterling and the Canadian and Aussie dollar.

The Japanese must be pissed at the Swiss action. The last thing Japan needs is a stronger Yen, the SNB added to Japan's problems in the month.

I wonder what the folks at the ECB are thinking about this. On one hand, a cheaper Euro is helpful to the Euro economies. But not if the adjustment takes place too quickly. The 8% deterioration in the Euro in May added to the instability in the debt markets of Europe. The Euro weakness was the shining example of all of the European problems. My guess is that the deciders in Brussels and Berlin are angry at the Swiss for trashing their currency at a very bad time. The SNB could have waited a month or two to diversify its holdings in an effort to avoid more market turmoil. But they chose to blast an already unstable market with very big supply.

I would suggest that the policy of diversification has added to the amount of Euros that the SNB had to buy in the EURCHF market. Every day that the EURUSD got weaker, it added to the demand for the Swiss Franc. I believe that the SNB contributed to the global market instability that occurred in May. It’s impossible to avoid the conclusion that the policy actions were a failure.

The question of the hour is, “Can the SNB continue to intervene at this pace?”

My answer to this is, “Absolutely not”. The risks to the country of accumulating reserves at this rate are very high.

I have to believe that the US Fed/Treasury, the Bank of Japan and the ECB have been making calls to the SNB and the President of Switzerland to lay off the intervention and the diversification. The only option left for the Swiss is exchange controls. They will make it very expensive to own Swiss Francs. Negative interest rates (currently -75BP for two months) will get more negative. Reserves will be applied to FX positions and there will be restrictions/taxes on any new money coming into the country.

In my opinion the odds for exchange controls to be established in Switzerland this weekend are very high. If it is not this weekend, it will be before the end of the month.



I was on Swiss radio this week discussing the dilemma the SNB is faced with. I did not make any new friends with the interview. I contrasted the 54% of youth unemployment in Spain to the 3% rate that exists in Switzerland. The announcer remarked that this huge difference was a result of the Swiss managing their economy much better than the Spaniards. I responded that the results are a function of currency manipulation. I don’t think I will be invited back. My rant (link).


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
joe90's picture


Bruce, here's a system that could solve the sovereign debt crisis, what do you think.

  1. All central banks are owned by the government/sovereign.

  2. Accounts at the central bank are available to anyone, banks/individuals/corps all treated the same, banks lose this priviledge. This is the only account that the owning government will guarantee. Interest rate on balances ZERO.

  3. The central bank holds gold as a reserve, publishes the amount held, and prices it's fiat by dividing the weight of the gold held in reserve by the sum of it's deposit balances and fiat notes/coins in circulation.

  4. Gold is traded freely OTC at this price. Gold will therefore be attracted to the weakest currencies = investment opportunities for savers. The central bank buying and selling gold at this price with it's account holders has no impact on it's fiat price relative to gold.

  5. Government spending is a credit to this account, taxes paid are a debit. Government taxes increase the relative value of it's fiat wrt gold, spending reduces it.  ie. Governments spend by simply "printing" fiat. but they are "punished" for it by a reducing value of their fiat (attracting investors pushing away savers).

  6. Central bank currency swaps are carried out at the rate determined by the relative prices wrt gold and accompanied by the transfer of gold. Again not impacting at all on the relative prices wrt gold.


So in this instance say Swiss banks are accumulating euro denominated deposits (and wanting these changed to Swiss Francs) the banks have a choice of presenting these to the European central bank for gold, or taking them to their own central bank and exhanging them for swiss franks at the rate determined by the relative prices of gold.


Accumulations of deposits in a country by foreigners is therefore accompanied by an increase in that central bank's gold reserves (without changing the "price" of gold). This capital flow would need to be controlled (of course as it is in most countries I would expect) to prevent inflation and exploitation for foreign investors, but for savers looking for a safe haven (fleeing spendthrift governments) the deposits are always backed by gold.


Would it work?  It's based on what I have read on FOFOA's blog but I've not seen it described as above?


Wolf Richter's picture

Excellent piece, Bruce.

There may be another (tongue-in-cheek) solution to their currency problem: Government changes its laws to completely do away with bank secrecy; announces that data of all foreign account holders will be forwarded to their respective governments worldwide; gives them a year to get their money out. Listen to the gigantic sucking sound. Watch the CHF crash. SNB gets rich on its euro holdings. Economy goes into turmoil. And we'll have another drama to blog about.

malek's picture

By my calculations $66B are more like $1.5mm a minute... still a nice number.

HoofHearted's picture

Every minute WHILE THE MARKETS ARE OPEN...read the entire piece and try to understand...

Stuck on Zero's picture

Tens of trillions of hot money is rolling around looking for a safe haven.  There is no safe haven for toxic waste.  Wherever it lands it will pollute and destroy the hapless fools.     

HoofHearted's picture

Negative interest rates usually lead to people investing in gold. And since somebody somewhere (wink, wink) wants to keep the price of gold low...well...it makes perfect sense to predict what will happen to all those tens of trillions...

Stuck on Zero's picture

The only way to dispose of all the toxic paper is to allow the rush into gold.  The Fed could let gold go to $30K an ounce, it could capitalize on this by selling 50 million ounces to recoup all the paper.  It could then dump 30 million ounces to crash the price.  Voila, all the toxic paper is gone and it could then issue a new gold backed currency and gt all the gold back.  Problem solved: $30 trillion in toxic paper burned.

deepsouthdoug's picture

So what would that do to Swiss bank stocks?

Village Smithy's picture

Doing things just because you can isn't always the best reason. There seems to be considerable arrogance here as  justification for policy.

americanspirit's picture

I know nothing at all about currencies - trading them, manipulating them, etc - but I do know that producing stuff that people want and selling that stuff for more than it costs you to make it is the only way to legitimately bring currency into existence. Everything else is a shell game played by egoists who truly believe that they are superior beings, and I also know that sooner or later, without fail, throughout history, they have lost everything. Of course while doing so they also took the rest of society down in flames with them, but at least once they have fallen to street level they can be dealt with in the traditional ways of upset peasants with nothing to lose. Which is why Switzerland has always been so attractive to these people - it seems to be the one place in the world where they actually get to keep what's left of their ill-gotten wealth and are protected from the angry peasants. If ( big if) the Swiss let them in. Sounds like that may be becoming a bit more problematical.

Cthonic's picture

Angry peasants have a history of taking out their frustrations on innocent parties; there will always be demand for safe havens.  Most Americans don't seem to realize that our country has served as the preeminent safe (and tax) haven for the rest of the world (non-resident aliens) for the latter half of the last century.

Tao 4 the Show's picture

This is not a simple situation. Strength in the CHF immediately hurts a large number of Swiss exporters, and they are still suffering at the 1.2 peg level. A peg of 1.25 or 1.3 would be much better for them and would reflect conditions less than 2 years ago. The exchange rate was something like 1.5 in 2009 and the structure of the society was built on this basis.

Forgetting the safe haven flows for a minute, what the exchange rate represents is largely the cost of labor. If this is not obvious, think about it for a few minutes as it is key, IMO. Within the last couple of years, Swiss workers received a huge raise in terms of Euros for no reason other than loss of confidence in Euro country finances. (BTW, this raise does the Swiss workers very little good unless they cross the border to shop. Importers are the ones who profit - not workers.)

Bottom line is, the peg makes very good sense from an export point of view. If only Euro countries make their labor cheaper (declining Euro), Switzerland suffers and eventually has big problems. So, while de-pegging is reasonable from a currency and international relations point of view, it makes no sense from an real economy perspective. Currency controls have the problem that they hurt the Swiss banking business, which is already fairly well beaten up by breakdown of the privacy controls.

Basically, this is not a good situation in any direction. Currency controls are more likely, but there are reasons not to do anything.


Edit: Bruce, I listened to your interview and appreciate all the forward thinking. One point, though, regarding your ethical assessment: Europe has DEVALUED its currency substantially in recent months, whether by design or not. The Swiss currency STRENGTHENED by some 30% before the peg was put in place. If the Swiss move to limit the strengthening, how is that unethical or unfair? I really think you have swallowed some kind of la-la pill. You are suggesting that misery ought to be shared equally. Why should Swiss workers get a raise in Euro terms just because the Euro zone is badly managed and was a bad idea to begin with? Please explain.

The only point of "unfairness" I can see is that a country is asking too much to maintain a position as both a safe haven for money and a competitive exporter. But this conundrum is in fact being dealt with by the market itself in the form of too many Euros at the SNB. Any other story about unfairness seems to me to be the same Bass Ackwards thinking that is dominating the entire world financial mess right now. You selling that Kool Aid, too?

Bruce Krasting's picture

Like I said, I don't think I'll be back on air too soon. I suspect you would agree.

I understand and appreciate everything you say. But you must agree with me on one thing; Switzerland is a currency manipulator.

As a rule, I speak out against any government/central bank that manipulates markets. This always ends up badly. It is just an effort to buy time. Oswald Gruber said it better than me.

I have written about the US Fed's manipulation many times. What it is doing makes the Swiss look like minnows in the ocean.


Kool-Aid 4 Sale

Cthonic's picture

Bruce wholly agree with you that the intervention is failing and will eventually be phased out, however you can't blame the SNB for diversifying out of the euros they're hoovering up.  Their first order of business is to protect the stability of the underlying economy; while we can trade currencies in a split second, it takes orders of magnitude more time to adjust contractual relationships as well as for people to react to large changes in the purchasing power of their home currency.  With the piercing of their privacy veil and the unsustainable expansion of their largest banks abroad, the Swiss realize they must maintain a diversified economy going forward.  Their banks lent heavily into old eastern bloc countries, allowing their currency to appreciate would make those franc-denominated loans nay unpayable; perhaps the correct tact would be to have their banks take the hit and modify those obligations to eliminate one source of demand for francs, however that again is something taking serious time and political energy to implement and the end result would be the same (excess euros still flowing in).

machineh's picture

Your post highlights a great paradox.

In the case of Greece and Spain, the prevailing wisdom says that they are in trouble because they don't control their own currency, and so can't devalue their way to competitiveness.

But the flip side is that Switzerland, which DOES control its own currency, feels obliged to join the 'race to the bottom' to prevent hot money inflows from revaluing its currency into uncompetitiveness.

Fiat currency is just a hopeless mess. It's like a drinking game where everyone has to keep up with the biggest boozers at the table. You just know the cold gray dawn is gonna look ugly.

Ghordius's picture

"currency manipulation" sounds so criminal, doesn't it? It isn't the way the SNB is doing it, and it's the game in town anyway since China does it in a completely different scale and the result supported the UST/USD complex for ten years - just compare the balance sheet of the central banks of China and Switzerland to their respective GDPs.

Meanwhile, the debate in Switzerland is between three groups of roughly the same size, 1) those who want the CHF to depreciate more, 2) those who want the floor to stay the way it is and 3) those who remind everybody that the Swiss Federal Council, the parliament and even the general public have no business in interfering with the independent central bank, particularly when it's defending a compromise. Yes, there is of course the appreciating fringe, but it's small.

A lot of your thinking is based on a conviction that the EUR is doomed, following your radio talk. To me, it looks like the Confederates have a different opinion in general and a different understanding in what exactly such an event would mean for the SNB's balance sheet, compared to yours.

We'll see.

Tao 4 the Show's picture

True, they are manipulating.

We are living in interesting times. Kissinger over the years expressed jealousy of dictatorially ruled countries because they can do what they want, when they want, without much citizen interference. Asian employers can drive wages down as low as they need to, but westerners find it difficult, while also having to deal with those pesky environmental regulations. The western equivalent of wage reductions is currency weakening. When it is overt, as in the case of the Swiss, labels are applied. When it is due to bad management, as in the case of the Euro, it is just a profit opportunity for currency traders.

While I agree that currency manipulation more or less defeats the idea of independent currencies, I would also place it ethically commensurate (or less offensive) with overspending, political corruption, hiding deficits with derivative loading, etc., etc. The part that is hard to stomach is that the Swiss do run a pretty tight and balanced ship. The Eurozone, in contrast is a gigantic mess with hidden power-grabbing agendas on one side and financial lying and corruption on the other. The Swiss were squeezed by this mess and if they do nothing, Eurozone countries will gain a labor cost advantage. If the Swiss had joined the Euro, their labor would be cheap now and no one would be complaining of manipulation. But they would also be buckling under the Club Med debt load as Germany soon will be.

So, I will go along with you on the manipulator label. But at the same time, I compare it to the guy labeled "trouble maker" when he objects to his kid being patted down by airport agents. He is indeed a trouble maker in the current context. The problem, however, lies in the fabricated context, not in the man trying to be a responsible father.

Until the public is able to grasp this level of observation, the game continues and we are all floating in a sea of artificially flavored Kool Aid.

YHC-FTSE's picture

Some nice posts, Tao. I think most people would agree with your defence of the Swiss, the gist being wtf else can they do in an insane asylum? But imo, they didn't have to play the game. They could have accepted the role of safe haven and the realities of being far too expensive to be a competitive exporter. They will have to anyway, sooner or later. I know, it is easy enough to say & hard to implement, but of course I am not a Swiss politician staring at the collapse of the Swiss chemical/engineering industries and the jobs attached to exports if I did nothing. In the mean time, kids all over the EU will enter a jobless market adding to the burden of economies in stasis. Bruce's view that Swiss currency manipulation is a major factor in unemployment outside Switzerland, and your view that they are merely being pragmatic are both understandable.

The thing is, we don't traditionally treat sovereign bonds the way we treat other financial instruments and I think there is a grave danger in seeing them as zero-risk in this intimately connected and networked world. We have investors who distrust the banking system and corporate bonds who are flocking to "safe" government bonds, just as they did during the Great Depression when US bonds traded at negative yields, during the 1990's when Japanese bonds traded at negative yields, and this year with German, Danish and Swiss bills traded at negative yields. A debt that pays itself is, in any universe, crazy. But here we are. This year, I am afraid, looks like crunch time* and playing the global devaluation game to the bottom will probably end in tears for all concerned unless you have physical, liquid, (hint: it's yellow and shiny) assets to protect your family from the fallout. Yes it's a cliche on ZH, but one can't repeat it often enough. 

*I've been wrong before, so take my fear about this year with a pinch of salt.

Tao 4 the Show's picture

Thanks for the thoughts and feedback, YHC.

The "when" question is hanging over everyone's head. I pulled out of the futures markets a few years ago as the system risks seemed way too high. Turns out I was early, but after MF Global went down, the risk I was expecting is manifest.

Each day, and especially weekends give the impression that big dislocations are near at hand. The current question is whether the election year safety net will hold through 2012. Sinclair says no, Rogers says yes (as examples of the divide).

Wish I knew, but I am fairly sure there will be moderate to large disruptions this year even if the system holds together. But as many good thinkers like Rogers, Paul Craig Roberts, Stockman, Sinclair and others point out, system failure is near at hand.

Bruce Krasting's picture

Not to worry about the poor Swiss.

In the race to the bottom, they will come in last place.

sangell's picture

There is an article by an academic at Real Clear Markets who suggests that capital controls will not be very effective for a nation like Switzerland. If not what then?



YHC-FTSE's picture

"I responded that the results are a function of currency manipulation. I don’t think I will be invited back."

Well done mate.

With Swiss bonds "paying" negative yields, border controls on cash, and the SNB playing with currencies from half a dozen countries at a rate of €7m/min to keep the EURCHF ratio, exchange controls are pretty much in place and I guess FINMA's "crisis committee" will do more of the same soon? 


Surely somebody at the SNB can see that this intervention is a self-reinforcing, feedback loop that requires more reinforcing until everyone on the planet pays the Swiss all their earnings just for gracing this planet with their country? :). Maybe not, but it will be interesting to see how much negative the interest has to be until our desire for the CHF droops. 

El Oregonian's picture

They'll make Swiss Cheese out of the Euro before it is all said and done...

rehypothecator's picture

It will be real Swiss cheese, too, with holes and everything.  Not like the fake holeless squares sometimes put on burgers in America.  Big holes! And lot's of 'em. 

Almost Solvent's picture

I’m at Nakatomi Plaza. They’re turning my car into Swiss cheese!
I need backup assistance now! Now, goddamn it! Now!

RiverRoad's picture

Is it any wonder these European nations' financial situations are dire?  When Europeans consistantly squirrel their money away in Switzerland and other similar tax havens it follows that at some point their respective nations will go broke.  Then they would like us to help restock their banks so that they can continue to pour their money into Switzerland?!  I don't think so.  There will never be financial stability in Europe so long as tax havens exist.  Let's be clear here:  what the Swiss "manage so well" is tax avoidance.  Bring on the currency controls in Switzerland, the sooner the better.

aerojet's picture

That is one of the stupidest analyses I have ever read!  Banking havens are not the problem. The problem is welfare state socialism and its voracious appetite for money to waste.  The banking havens are only a symptom of a much bigger illness.

LawsofPhysics's picture

I suggest you look up the difference between fascism and socialism.

NotApplicable's picture

They're still kissin' cousins.

nonclaim's picture

"The banking havens are only a symptom of a much bigger illness."

Exactly right.

And back to the topic, if it was gold being shipped to Switzerland instead of make do virtual paper, the Swiss would not have to sell its own virtual paper notes.

BTW, are their private gold bullion vaults still full like a few years back? More built?

falak pema's picture


$7 Million a Minute : Is that the new going rate for a Geneva hooker?


uhb's picture

hooker services are (More or Less) illegal in switzerland

falak pema's picture

well as BK says, the Swiss will come last in the race to bottom. So Swiss hookers should do OK with all those Sheikhs who want to rattle n roll; their money and their cojones!

the tower's picture

Prostitution is 100% legal in switzerland. Age of consent is 16. Read up or shut up.

malikai's picture

At some point, there will be no options left for the SNB. When that time comes, I think you're right, it will be currency controls. A couple weeks ago I smelled a rat when one of my DMAs (Activ) hiked margins on CHF for no apparent reason. Ever since I've been waiting for some sort of big move. Be it depeg, controls, or whatever. Outright depeg sounds like it would be very disruptive, so my thought is that controls would appear to the SNB to be the only 'reasonable' choice. Reasonable to them, that is.

LULZBank's picture

Swiss can let the CHF go as strong as possible, and print into the strength.

As for the corporations and individuals, they can give them handouts, who can then enjoy the added purchasing power.

Am I being too simpilistic?

malikai's picture

If it was me, I'd print just enough to hold against usdx or some internal fx index and buy bullion with the difference. But I'm just a simpleton. There's probably political reasons why they can't do this or can't do this publicly.

NotApplicable's picture

Drones, Nukes, Targeted Assasinantions, Colored Revolutions... The list goes on and on.

Either do as you're told, or watch it all fall apart around you.

Shibumi2's picture

Very Very Strange!


The idea that a country/aggregation of people can produce seemingly as much of something as they want, at no cost, and enjoy increasing demand!


Not to mention their production costs are essentially ZERO.


Odd that they are scrambling to trade their EUROS for other worthless FIAT instead of buying up gold on the cheap! Lets say they used 1/2 of their EURO reserves to buy PM's....the demand for CHF would skyrocket! Allowing them to buy more PM's! Kind of like a governmental SPROTT!


Crazy times indeed when a group of people find increasing asset values to be a PROBLEM. Like the poster said, they can hands out money like the Indian Casino's do.

LULZBank's picture

Thanks for the affirmation. Here I was thinking, Im the only strange one.

If I was the Swiss president, I would send the whole poplation on paid vacations, with fresh printed CHFs, to have the time of their lives untill the time we need to actually produce something to earn.

I'll get all the votes and the rest of the world can enjoy all the liquidity, stimulus and growth.

Worldwide economic problems solved!

Stax Edwards's picture

The Swiss are the new Chinese.  The currency race to the bottom seems to be picking up some speed.  

Manipulism's picture

Mr. Krasting, BONN???

Ever heard of BERLIN?

Bruce Krasting's picture

Tks. Berlin it is.

When I was trading FX it was Bonn. Hard to learn new tricks....

Jack Sheet's picture

Some parts are still there.


God knows what the total costs of moving from BN to B were and still are. Probably upwards of 10 Billion €


Manthong's picture

Don't feel bad..

I still sometimes think of frequency as cycles (CPS) and gay as being jovial.

Wjunk's picture

..and what happens when they do impose currency controls?  I'm just a Newbie who is reading and learning the various coorelations.

fredquimby's picture

Don't worry, they won't.

gaoptimize's picture

It is the Swiss independence from the Euro and almost all the Eurocracy that has allowed them to run their economy better.  This is what created the demand for the Swiss Franc in the first place Bruce.  Your rant has some valid elements, but is ultimately incorrect.  The entire country on Switzerland is one big prepper group.  Man, I wish I had Swiss parents and Michelle Bachman is going to regret she didn't keep that Swiss citizenship.

NotApplicable's picture

"The Swiss" is also a nebulous plurality, rather than an acting person. While one individual preps, another sells out the formerly sound banking system, ala Corzine's takedown of MFG.