By Robert Aro
This time last year, the Swiss National Bank (SNB) had US stock holdings of $94 billion. The portfolio of Switzerland’s central bank has grown by $56 billion since, reporting ownership of $150 billion worth of US listed stocks as at Q1 2021.
Apple is currently the largest holding, at $8 billion, but the portfolio contains countless smaller publicly traded companies, like GameStop, valued at $25 million at quarter end this year.
At the recent annual general meeting, SNB Chairman Thomas Jordan said:
We would like to live in a world where the interest rates are positive. But in the current situation negative interest rates as well as readiness to intervene in the currency markets are essential.
Per the Chairman, it’s not the bank, the world just isn’t quite right. Apparently, due to the “current situation,” the bank is forced to act accordingly. As reported, despite a recent devaluation of the Swiss franc, the currency is still “highly valued.” For this reason, its appreciation must be moderated via monetary intervention.
Unfortunately, these actions create a few unconventional outcomes: a policy rate of minus 0.75% and the purchase of over 2,000 US publicly traded stocks in order to manage the foreign exchange market. This “essential” intervention has an upside for the SNB, a profit of $23 billion USD for year end 2020, of which nearly half came from foreign currency positions such as stock gains and dividends.
As if manipulation of foreign exchange markets is nothing more than routine policy, Reuters reports:
The SNB spent nearly 110 billion Swiss francs ($120 billion) on currency interventions in 2020…
It seems unfathomable that approximately $120 billion USD was spent by the SNB for the purpose of currency intervention during the year. This money was not the result of profit made from the sale of goods or services; the SNB is not a highly successful investment bank who is simply buying equities from past business dealings. Rather, it’s a central bank. The purchases come from money creation for the purpose of buying stocks. This only works because they have a monopoly on one of the most desired currencies in the world. The SNB continues to do what only a handful of central banks can successfully get away with, for now.
Over the course of the year, they never wavered on this most lucrative of devaluation strategies. Their actions led to a hefty profit, money supply expansion of Swiss francs, and Switzerland having the lowest rates in the world. Like most central bank inflationary schemes, there is no end in sight. We are left to wonder what the value of the portfolio will be this time next year.
If this strategy works so well for Switzerland, there’s no reason the USA shouldn’t do the same. After all, the USD is still one of the strongest currencies in the world as well. But if the Fed employed the same strategy, buying $150 billion of stocks and making billions from dividend income, it would most certainly be considered problematic; the same sentiment should exist to the SNB.
It’s concerning why this story is only followed by a limited number of media outlets, and will likely never be important enough for mainstream economists to speak against. Few people in America or Switzerland seem to realize, nor care, what is going on. But it’s important to note the flagrant abuse of power, theft, and inflationist monetary policy that makes our already expensive stock market all the more expensive.
Source: This article was published by the MISES Institute