Swiss Central Bank Defends Cap

In last year, The Central Bank of Switzerland had spent 10 times more than what it did in the year before in an attempt to defend the currency cap that was implemented for shielding the Swiss economy. The Swiss National Bank has bought $199 billion in foreign currencies from a big range of counterparts in not only inside Switzerland, but, abroad as well. The details were published by the bank in its Accountability Report. Thereby, the bank has amassed record foreign currency reserves for protecting the ceiling. Incidentally, a big part of these reserves are held in the highly rated Government bonds. In 2011, the bank spent $17.8 billion on the different foreign currencies.

The bank officials, while announcing the report stated that they have taken care to avoid its investments having any possible impact on the markets and also currency developments of the other countries. In September, 2011, the bank decided to impose a cap on Swiss Franc, the major currency of Switzerland, of 1.20 versus Euro. This decision helped the European country a lot and basically saved it from experiencing a downturn. Incidentally, the Euro region forms the biggest trading partner of Switzerland and is currently trying to emerge from the recession.

The foreign currency reserves of the Swiss National Bank has declined in February to 427.5 billion Francs, as per as the bank reports are concerned. The current foreign reserve is almost 3/4th of the annual Gross Domestic Product of Switzerland. When the president of the bank, Thomas Jordan, was asked that what’s the current capability of the bank to spend in 2013 for making the cap stick, Jordan stated that though they are weighing in every possible aspect, it’s too early to comment on the future. Incidentally, only last month, Jordan stated that though Switzerland has been able to escape recession, they have no intention of giving up the cap. The robust domestic consumption which is aiding the offset softer exports of Switzerland had an instrumental role in keeping the country away from recession.

Each Euro costs 1.2328 Swiss Franc currently, as the latter had weakened by 0.3% after the announcement of the central bank came out. If compared to USD, Swiss Franc is at 94.67 centimes. Alexander Koch, the Economist of UniCredit stated that the chance of central bank not having to wage big interventions is a good thing.