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Bruce Krasting's picture

The 1st Q reserve numbers for the Swiss National Bank tell an interesting story. For a second quarter in a row, the foreign reserves have declined.



There is only one way that this could have happened; the SNB offloaded a portion of the EURCHF position it took on back in September of 2011 when it was forced to intervene. A significant portion of the CHF 60B ($67B) "reverse intervention" was the result of the unwinding of large speculative short EURCHF positions by market players. (This demonstrates how big the speculative capital flows were.)

Some additional EURCHF sales by the SNB were, no doubt, accomplished when the market was betting that the SNB would raise the Peg from 1.20 to 1.30 or higher. Officials at the SNB did everything they could to encourage speculation that the Peg might be raised. I find it amusing that while those officials were talking the EURCHF higher, they were actually selling on the side. Basically they lied. For an interesting perspective on this: Link

Just a few weeks ago a big shot at Goldman was selling the idea that the SNB would raise the Peg to 1.35. Maybe some of the SNB's“chatter” rubbed off on O’Neill.



At this point the EURCHF is truly pegged. If it goes higher, the SNB will take the opportunity to offload more of its unwanted Euros. The flip-side is also true, having reduced its reserves by 20% over six months, the SNB has tons of ammunition to fight off a speculative attack. It’s as if the Swiss have joined the Euro at a fixed exchange rate.

If the political issue of actually getting married to the EU/Euro were on the ballot, the Swiss would vote 10 to 1 against it. But when it comes to creating a currency advantage, the Swiss look the other way.

If the discussion ever came up about what exchange rate the EURCHF should be permanently fixed at, it would be at a rate much closer to 1.00 then 1.20. The Swiss politicians understand that; so do the folks at the SNB.  Most of the population understands it as well. In the meantime they reap the benefits.

What do you get if you have a currency whose value is manipulated? These two headlines answer that question:





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hit_the_bid's picture

"There is only one way that this could have happened; the SNB offloaded a portion of the EURCHF position"

sorry, why is this the only way from the info they have provided? do they not hold other foreign ccy investments which could explain the drop? foreign ccy investments includes securities btw.


Careless Whisper's picture

Euro R.I.P.

At least tourism will be booming in Ibiza when Spain goes back to its old currency.


tomRapheal's picture

Having a weak currency is not an advantage.  Accepting lower pay through currency manipulation is not good.  If the CHF rose, look at how the Swiss standard of living would go up.  Also, allow for market pricing.


Some people complain about the Chinese currency manipulation, I laugh.  If the Chinese are willing to work for green pieces of paper that are plunging in value and not gettting anything in return, you're right, they will outcompete me all day long.  I wonder when the Chinese wake up and quit measureing their economy is with stupid things like GDP and unemployment, hopefully not for a while.  As an American, I would like to continue to enjoy the fruits of their labor for nothing.

meimei's picture

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dataanalytics's picture

"If the CHF rose, look at how the Swiss standard of living would go up."

Perhaps for the wealthy, but not for the average Swiss or the just below average Swiss. As this was happening, prices at COOP and Migros as well as retailer Obi and many more were all rising and making some goods, groceries and clothing less affordable for some of the people. It was beginning to worry the Swiss government. Health care costs were also rising during the period of strong franc growth last year. I have many Swiss friends who were letting me know what was happening 'on the ground' in Basel and Zurich. As much as I do not agree with CB intervention and currency debasing, I think the Swiss had little choice to stave off commodity inflation due to the weakening euro and well as other currencies.

malek's picture

You clearly have no clue what you're talking about.

If the CHF gets stronger, imported goods get cheaper. Only exports suffer.

In effect the peg is directly bailing out the export dependent industries on the back of the regular people - and only some of them, who are employed by those industries, also get some indirect benefits.

Ratscam's picture

so what is a typical commodity of Switzerland, except cheese?
Most of the commodities are imported, refined and sold off again to other countries. Hence input costs go down at the same price as the currency increases. The big retailers however did not pass on the currency advantages to their customers.
Having a strong currency is not a disadvantage as they make us believe.
However oligopolies with pricing power yes.

barliman's picture



You jumped the shark tying Spain's youth unemployment to the CHF peg to the Euro, don't you think?

There are a few things in Spain contributing to unemployment:

  • Productivity: Spain is where you send work if you don't want to get it done anytime soon. This is not a secret in Europe.
  • Banks: Spain's banking problems are a HUGE deterrent to capex spending.
  • Housing: The bottom under the Spanish housing price drops is more easily measured as being X% above zero than Y% down from their peak.

Any chance of any acknowledgement that maybe the Swiss knew what they were doing when they set the peg?


tonyw's picture

One of the differences is that Switzerland has flexibility for employers i.e. it is easy and cheap to lay off people as required unlike many other European countries.


barliman's picture


And Spain makes it almost impossible to terminate an employee.

Both of which explain the youth unemployment differential far more accurately than Bruce's FX statement,


YHC-FTSE's picture

I go away for months and when I come back the articles are still the same. ;). Didn't we do the CHF/EUR peg to help Swiss exports, and tut-tutted at those dastardly Swiss central bankers (And their wives) for moving their currency on rumours? 

Anyway, at first glance I thought it was a bit of a stretch to contrast youth unemployment and blame it on currency manipulation considering Spain's rather different demographics, culture, history and the bubbly nature of their economic structure. But on second thought, I think you have a good point. What about Germany? If I recall correctly, the Swiss employ German commuters/settlers in their industries, and in return Germany is Switzerland's largest export market. As recently as 2006, 25,000 Germans a year were settling in Switzerland, inciting the Swiss to gripe about arrogant Germans taking their jobs, who in turn told the Swiss to blame the muslims and their minarets instead. Funny old world. 

Nice to read your efforts again, even if it is bit of a deja vu.

How many Germans can the Swiss Take?

forexskin's picture

hey - welcome back

deja vu all over again - just that fuzzy old mercantilism working until it doesn't.

and that constitutes the topic over which ZHers drool - when is that moment?

YHC-FTSE's picture

Hey - thanks mate.

Yep. It really is taking too long for this whole thing to implode. As noted by almost everyone seasoned at ZH, it's an incremental slow motion car crash apparently. 

NotApplicable's picture

The longer it takes, the more wealth the strong hands take from the weak.

Their goal is to take it out to perpetuity as we earn it.

Mercury's picture

Print money, buy gold.

Print money, buy dying currency.

I'd like to see what would happen if that were on the ballot.

GMadScientist's picture

Save the EU! Spanish houseboys in every chateau!



LawsofPhysics's picture

After your "Houston we have a problem" article I was hoping that you would come back to this (UBS profits are down how much again).  All of euroland (including the swiss) are suffering from the same thing and in reality ALL econimies are local.  The swiss have had the most expensive house in a bad neighborhood for quite some time.  Is the eruopean union a union or not?  It would appear that the swiss have been frontrunning and participating in the currency wars all along.  You make the bed in which you lay.  I see the coward junkers are at it again.

SoundMoney45's picture

The fiat Franc is just another fiat currency. The fiat Franc's strength today comes from erroneous perceptions based upon history, when the Swiss Franc was as good as gold.  Thus the fiat Franc is a trade, not a store of value, and it is difficult to profit trading against the SNB without advance knowledge of SNB/BIS market manipulations.  

disabledvet's picture

German interest rates are spectacularly low. How much lower can they go before they represent a "Japanese scenario"? Seems like a lot more moving parts than after the Japanese collapse back in '87. With the dollar weakening against the yen again it seems like deflation really is a possibility here...something that truly hasn't been seen since the pre-World War II years. The other interesting thing is the Hong Kong market surging. What's up with that?!

Ghordius's picture

"...when it comes to creating a currency advantage..." Bruce, it's not an advantage, the Swiss Producers would prefer 1.40 instead of the 1.20 of the moment. They fear to be priced out forever.

But the SNB is rightly not giving in at the moment and the Swiss Parliament agrees. It's painful to remember that "you financial guys" (don't take it personally, it's a rant) simply don't "get it" that the wrong FX moves industries across the globe. The Swiss want to keep their industry at home. And their international products come with prices listed in EUR, btw.

disabledvet's picture

what industry? Bessie the cow and her cow bell? When last i checked financial services WAS the industry there...

GeneMarchbanks's picture

Not entirely, there is Adecco, Nestle etc. You were thinking City of London probably...

tom a taxpayer's picture

Bruce - How does your analysis today relate to your analysis ("Houston - We have a problem, in Switzerland") on April 10 in which you concluded:

"The EURCHF may be the tipping point for a new round of financial instability. I see this tipping into the dark side. I see this happening before week’s end."

Bruce Krasting's picture

Well, they timing was clearly wrong, but I'm not throwing in the towel on whether the CHF crosses will be the tipping point for another round of instability.

We are sitting this AM at 1.2016. How much closer can we get?

Keep in mind that there are two critical elections this weekend. (France/Greece) We could wake up on Monday with a very different set of dishes on the table.

tom a taxpayer's picture

Yes, but today its appears you are reversing that position by saying, without qualification, that the SNB has the ammo to fight speculative attack: "The flip-side is also true, having reduced its reserves by 20% over six months, the SNB has tons of ammunition to fight off a speculative attack." If you think that DESPITE THE SNB RESERVES, "We could wake up on Monday with a very different set of dishes on the table.", then why not make that point also in today's article rather than implying the opposiite just before this critical week-end.

NotApplicable's picture

Critical elections! LOL

Good one!

ConfederateH's picture

The Swiss economy is booming mostly due to Euro's flowing in and incredibly cheap Hypotheken (mortgages).   Libor hypotheke's go for as low as 1%, so this nation of 70% renters is moving to buy houses and it is driving up house prices especially around Zurich and Geneva.  When this bubble bursts there will be a big price to pay, especially once the second mortgage initiative kicks in and EU slaves looking for a "get me out of the EU" card dry up.  Meanwhile, industry is frantically offshoring and bank profits and CS and UBS are drying up as they cut their workforces.  Pharma is moving away and old staples like weaving machines and machine tools are on their last gasps.

So it is not only the SNB that is guaranteeing that Switzerland will get sucked down the toilet bowl with the rest of the EU.



disabledvet's picture

"Manhattan in the mountains...

Ratscam's picture

More like grand Monaco of Europe

Ghordius's picture

"the SNB has tons of ammunition to fight off a speculative attack". Yup, the concept is called Central Bank Reserves. It's the whole point in having assets on the balance sheet of a CB. Once every few decades, they are needed. Not yet, though, not yet.

GeneMarchbanks's picture

'It’s as if the Swiss have joined the Euro at a fixed exchange rate.

If the political issue of actually getting married to the EU/Euro were on the ballot, the Swiss would vote 10 to 1 against it. But when it comes to creating a currency advantage, the Swiss look the other way.'

Of course, and why wouldn't they? The period of 'big fish eat the little ones' is only getting started.

Bruce Krasting's picture

"Big fish eat little ones".


Yes, that is generally correct. But in this case a minnow is eating off of a sick whale. Go figure.

piceridu's picture

or Spain the path of least resistance until the dam breaks