Who put the Holes in the Swiss Cheese? Currency Crisis Under Appreciation Pressure

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The Swiss National Bank (SNB) has announced it will refrain from profit distribution in 2022 owing to the accumulation of a huge financial loss. In this paper we examine key determinants of the SNB’s loss and shed light on its implications to monetary policy pursuit. In particular, we show that different accounting principles yield different results concerning the equity position of a central bank’s balance sheet, yet not affecting the ability to run monetary policy.

Section: The Snb's Balance Sheet and The Key Drivers Of The Lossmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Swiss National Bank: Is the Recent Loss a Threat to Monetary Policy? A Research Note¹

Kämpf,

Stadtmann,

Zimmermann

2024

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“…A sharp rise of the total sum of the balance sheet by fxpurchases also increases the exchange rate exposure, which can limit a central bank's financial independence (Ivanović, 2014). However, an increasing exchange rate exposure was actually one reason why the SNB switched to a floating exchange rate system in January 2015 (Berthold and Stadtmann, 2018). In contrast, the ECB increased the sum of its balance sheet in relation to its GDP to a level of almost 40%.…”

Section: Comparison Of Monetary Policies Of the Ecb And The Snb Sincementioning

confidence: 99%

The Swiss National Bank’s fear of float

Berthold

Stadtmann

2019

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We theoretically examine under which assumptions the impossible trinity holds. We also focus on the most recent Swiss experience and ask whether the SNB gained monetary independence by switching from a fixed to a floating exchange rate system in January 2015. The theoretical examination shows that the impossible trinity holds under the following assumptions: Equality of domestic and foreign real interest rates, the quantity theory of money holds, and that the relative PPP is fulfilled. The empirical analysis reveals that relative PPP does not hold for the Swiss case and it was necessary for the SNB to adopt its monetary policy in accordance with the ECB’s expansionary monetary policy. We show that for a small open economy, such as Switzerland, whether the central bank implements a fixed or a floating exchange rate system does not play a role in its monetary policy independence.

“…Generally, episodes like the Latin American debt crises in the 1980s, the 1987 Black Monday, the 1992-1993 ERM crisis, the 1994-1995 Tequila crisis, the 1997-1998 South East Asian meltdown, the 1998-1999 Brazilian and Russian crisis, the 2000-2001 Turkish crisis, the 2001 Argentine crisis and the 2007-2009 global financial crisis are important phenomena in the world financial market. Moreover, currency crises have had a typical role after the collapse of the Bretton Woods system of fixed exchange rates where overshooting of exchange rate is one of the repeatable events that mainly has monetary root and has been introduced in a monetary framework by Dornbusch (1976) (Yazdani, 2013;Yazdani, Dargahi, & Nikzad, 2017;Yazdani andTayebi, 2013, Berthold andStadtmann, 2018).…”

Section: Introductionmentioning

confidence: 99%

Output Losses from Currency Crises and the Role of Central Bank

Yazdani

Nikzad

2021

Generally, one of the important issues related to currency crises is the output losses caused by these phenomena. In this study, determinants of output losses and particularly the role of the central bank will be evaluated during currency crises. Moreover, the paper tries to investigate the roles of macroeconomic variables and also monetary, fiscal and exchange rate policies on the output losses during currency crises. In this regard, an econometric model with panel data has been used for emerging market countries during 1980-2016. The results show that currency crises accruing have a positive and significant effect on output losses. While the successful defence of central bank has had the negative effects on the output losses, but it is positive for the unsuccessful defence and the non-intervention or immediate depreciation. However, the role of the macroeconomic condition is important where total foreign reserves can be considered as a buffer against the output losses, while inflation and deviation of the real exchange rate from its trend have had positive effects on the output losses. Finally, the output losses can be reduced by an active monetary, fiscal and exchange rate policies.