Guest Post: A Central Bank Running Suicide? SNB Prints At Pace Not Seen Since EUR/CHF Parity In August 2011

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Submitted by George Dorgan

A Central Bank Running Suicide? SNB Prints At Pace Not Seen Since EUR/CHF Parity In August 2011

The most recent money supply data from the Swiss National Bank (SNB) has shown increases of huge amounts. As compared with its loss of 19 bln. francs in 2010 (3% percent of the Swiss GDP), the central bank printed tremendous 17.3 bln. in the week ending in June 1st and 13 bln. in the one ending in May 25th.

These numbers were not seen since August 2011 when the SNB increased money supply by 50 bln and 40 bln per week buying the EUR/CHF at rates between 1.00 and 1.13. Now, however they are buying at 1.20 and are risking extreme losses, especially because many other central banks are dumping euros.

In the 6 winter months the SNB managed to reduce money supply by 35446 mil. CHF selling euros from its balance sheet. However, only in the last three weeks, the SNB lost all these “gains” and had to buy euros for a similar amount.

Last week rumors at CNBC about some developments at the SNB before the release of the Swiss GDP led us to the conclusion that the SNB either drops the floor or prints enormous amounts. A better than expected Swiss GDP and very bad US jobless figures were the reasons that the SNB had to print even more than in the preceding week. We calculated last week that if the speed of 13 bln. CHF per week is maintained, then currency reserves will more than double this year, a weekly increase by 17.3 bln. would mean they rise by 3 to 4 times. A member of the SNB board, Jean-Pierre Danthine said that the central bank is worried about the size of the balance sheet, but pledged that the central bank will defend the floor. No reference was made to capital controls. Earlier in March he told that Swiss inflation will come back.