SNB Spent $68 Billion On Currency Manipulation In 2016

Tyler Durden's picture

While Donald Trump has repeatedly expressed his displeasure with China for manipulating its currency, he appears to have recently figured out that over the past 2 years Beijing has been spending hundreds of billions in dollar to strengthen, not weaken, the Yuan and to halt the ~$1 trillion in capital flight from China. But while everyone knows that the biggest currency manipulation in the world, and perhaps the Milky Way galaxy is Japan, which now owns 40% of all JGBs in its ongoing attempt to pressure the Yen lower and explains why Abe was trembling when he met with Trump, terrified the US president would tell him to stop, one place where Trump may want to look is Europe's famously "neutral" country, which however continues to be quite bellicose when it comes to currency warfare. Overnight, the SNB announced that in 2016 it spent 67.1 billion Swiss francs, or $67.6 billion, to purchase foreign currencies in an effort to weaken its currency.

The amount, published in the central bank’s annual report on Thursday, was roughly CHF20 billion lower than the 2015 total of 86.1 billion francs and a record of 188 billion spent in 2012. What is notable is that in 2015, the Swiss National Bank ended its 1.20 EURCHF peg, which ended up costing the SNB tens of billions in FX losses.

As shown in the chart below, the SNB has used interventions for the better part of a decade to keep the franc, Europe's preeminent flight to safety currency, in check and lessen the risk of deflation. After it gave up its currency cap in early 2015, the SNB has also relied on a negative deposit rate to counter appreciation pressure. It reaffirmed that two-pillar policy stance last week.

Additionally, as part of its annual report, the SNB reported that at the end of 2016, the SNB’s assets hit a record CHF 747 billion, compared to CHF 641 billion the previous year, higher than the country's total GDP. The central bank's assets consisted almost exclusively of currency reserves, that is gold and foreign currency investments. Currency reserves were up by CHF 89 billion year-on-year to CHF 692 billion, principally due to inflows from foreign currency purchases and valuation gains.

And since the SNB is the only central banks which admits it is an aggressive hedge fund, it also reports both the composition of its balance sheet and the return on assets, and in 2016 it generated a profit on currency reserves of 3.8%. Meanwhile, returns on gold and foreign exchange reserves were 11.1% and 3.3% respectively.

What is paradoxical is that despite gold generating the SNB's highest return not only in 2016 (11.1%) and over the entire 2002-2016 period, at 6.5%, the central bank has been aggressively reducing the relative size of its gold-denominated assets over the past 7 years, mostly as a result of purchases of USD-denominated stocks and bonds.

In 2016, both fixed income investments and equities contributed to the SNB's bottom line. On the other hand, the slight appreciation of the Swiss franc reduced the return.

The SNB also revealed that in 2016, the SNB held 20% of its foreign exchange reserves in the form of equity investments. Measured in Swiss francs, the average annual return on equities since their introduction in 2005 has been 2.8%; the return on bonds has averaged 0.7%.

Finally, for those confused that the SNB is so open about its purchases and holdings of mostly US stocks, this is how the central bank justifies its policy of active stock management:

The contribution of equities to preserving the value of the currency reserves and building the SNB’s equity base has thus been very substantial during this period.

We look forward to how this boilerplate language will change after the next equity market crash which will wipe out tens of billions in "value" from the SNB's balance sheet.

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GUS100CORRINA's picture

SNB Spent $68 Billion On Currency Manipulation In 2016

So this is money that they printed out of thin air?

Why HELL, they are a CB so they can do whatever the they want to do including the purchase of US Stocks like APPLE.

No wonder the world markets and so screwed up!!!

This is the kind of stuff responsible for breaking the price discovery mechanisms of markets.

They in essence can push volatility indexes right to 0.

Scuba Steve's picture

Please do not tell me you are a trader and are just realizing this?

What did you think was going on with the U.S. Gov PPT, they tell SNB how and when its going to happen.

GUS100CORRINA's picture

Not really a trader, but have on varying occassions placed hedges into portfolios that were never really needed. We never really had any risk of the markets going down because the system was rigged way beyond anything I ever imagined.

For example, ETFs like SQQQ, TVIX, SDS, TZA, DXD, etc. were able to be shorted in 2009-10 time frame and never covered. The returns were way beyond virutally any investment option out in the investment space, But that is not what is troubling. What is troubling is the amount of DEBT that has been accumulated to keep this 'mirage of a market' going. In essence, future generations have NO FUTURE.

No matter, since this is the Jewish Year of Jubilee and year 5777 on the Jewish calendar, I expect real fireworks will errupt in the Middle East that are going to change everything later this year.

It should be interesting finish to the year.

ilion's picture

There was the right question asked in Tickmill blog, what is SNB going to do with his stock portfolio when the markets ultimately will crash? Who will bear the responsibility?

CHX13's picture

Have you not read any ZH the last 2 years and 25 weeks ??? All that is paper money /debt (even and especially the "price" of gold) is heavily rigged and manipulated by the big players (JPM/GS eseentially NO trading losses any day for years; CBs like the ECB/FED/SNB/BOJ/BOE... et al. as well as other players like the BIS/IMF/ESF...). They dictate the price and stop out the majority of the traders to find "free market equilibrium".

Quantum Bunk's picture

ZEROHEDGE is wrong. China is simply adjusting the trade band of the Yuan. They are doing POMO'S to set the value.  It is still WAY under valued

buckstopshere's picture

Gold is money.

Everything else is credit.

Jäger's picture

Wolf Gold trumps regular gold

Stan522's picture

Same shit with Gold, Silver and the fucking stock market....

 

We are just pawns supplying some of the money.......

theprofromdover's picture

The Swiss did it entirely about-face. Instead of buying Euros and other foreign paper, they should have subsidised their exporters under the table with the kind of shenanigans everyone else uses.

They thought burning money was better ....

Money_for_Nothing's picture

Michael Pettis has shown in his papers and books that all excess legal tender flows to Government debt. So the SNB just did the nasty the most efficient way. The SNB could have converted their Euros to Dollars and bought US Government Agency Debt.

Swiss did not want their work force to be able to sit on their asses and live off the toil of the German work force. SNB is incidentally showing what a corrupt farce the system is.

TheSilentMajority's picture

Those fucking SNB weasels are also printing and manipulating equities.

K_BX's picture

We look forward to how this boilerplate language will change after the next equity market crash which will wipe out tens of billions in "value" from the SNB's balance sheet.

nah - they`ll just create more CHF and continue to buy - pretty clever actually. they get something for nothing.