Swiss central bank posts bumper profit

The Swiss central bank posted on Thursday full year profits of 13.5 billion francs ($17.8 billion), with both its foreign currency stocks and gold reserves contributing to the result.

Swiss central bank posts bumper profit

The result marked a sharp turnaround from a year ago, when the bank lost 19.2 billion francs as the strong Swiss franc pared down the central bank’s foreign currency holdings.

But the Swiss National Bank moved to impose a floor on the franc against the euro on September 6th, 2011, thereby halting the franc’s strengthening trend and stabilising the value of its reserves.

The mininum exchange rate of 1.20 franc against the euro had helped to shed the Swiss currency’s haven status, thereby also bringing it down against other major currencies such as the dollar and the yen.

As a result, its foreign currency positions contributed 7.7 billion francs to the overall full-year profit while gold holdings made up another 5.4 billion francs.

Gold prices had soared to 47,473 francs per kilogramme at the end of December 2011 from 42,289 francs per kilogram a year ago.

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Why is the demand for 1,000-franc banknotes growing in Switzerland?

Large-denomination banknotes, like the 1,000-franc note, are rarely used for everyday transactions in Switzerland. So why are they becoming more popular?

Why is the demand for 1,000-franc banknotes growing in Switzerland?
The kind of banknotes the Swiss like to stash away. Photo by AFP

The demand for 1,000-franc notes has risen in the past months, data from the Swiss National Bank (SNB) indicates.

CHF1,000 converts to approximately €925.75, £824,63 or $US1126.98. 

Whether withdrawing the money from an ATM machine or directly from a bank, customers request large-bill denominations more often than before.

“We do know there is more cash being currently withdrawn in large notes, but it changes hands less often” Sarah Lein, a monetary policy expert from the University of Basel told SRF public broadcaster.

This means the money is not being spent but stashed away.

“We can conclude that some large notes end up in a safe”, she added.

READ MORE: Switzerland’s economy forecast to recover 'from summer onwards' 

The reason, she said, is that many banks charge their customers negative interests on large deposits.

“Therefore, it could be cheaper to simply withdraw the cash in large notes and keep it in a safe, especially since inflation has been extremely low for a long time”, Lein added.

This is not unusual — in times of crisis, more cash is often in demand.

But could this cause the shortage of 1,000-franc bills?

That is not likely to happen, Lein pointed out.

“Both the central and commercial banks have enough cash stored in their vaults to meet such demand. So there is always enough money available”, she said.

There is about 48.6 billion francs floating around in the form of 1,000-franc notes, constituting 59 percent of all Swiss notes in circulation. 

It is the world’s second-largest denomination after Brunei's B$10,000 note.

READ MORE: What do people in Switzerland spend their money on?