Swiss central bank in new trading controversy

The Swiss central bank is in the spotlight for the second time in three months over alleged currency trading by a key official during sensitive times for policy over the Swiss franc.

Jean-Pierre Danthine

An audit by accounting firm KPMG, published last week, alleged that an executive member of the Swiss National Bank, Jean-Pierre Danthine, had sold €126,000 ($165,280) for francs in May 2010 before the SNB stopped its interventions to support the franc when it was weak.

However the audit stressed that he had not acted for personal profit.

A senior leader in the far-right Swiss People’s Party (SVP), Christoph Blocher, said on Monday that the central bank should consider his situation.

“We’ll have to see whether Danthine can survive or not,” Blocher was quoted as saying in the Sonntag newspaper.

His remark followed the resignation of the chairman of the bank, Philipp Hildebrand, in January when it was found that his wife had engaged in a currency trade a few weeks before the bank put a €1.20 limit on the Swiss franc because it was too strong, driven up by a flight to safety in view of the eurozone debt crisis.

Switzerland is not a member of the European Union and so is not a member of the eurozone, but the bank in general tries to manage monetary policy to shadow eurozaone policy, given the high exposure of the Swiss economy to trade with the EU.

KPMG examined personal financial transactions of central bank board members after Hildebrand stepped down.

The audit alleged that Danthine had made two foreign currency transactions that needed scrutiny, whilst finding he had not taken advantage of confidential information for personal profit.

In the second trade Danthine sold 197,674 euros for francs to pay into the SNB pension fund after he had joined the bank.

The newspaper SonntagsZietung commented on Monday that the central bank should adopt regulations concerning the management of the personal assets of senior management members.

If members wanted to manage their assets, the newspaper said they should do to so through accounts opened with the national bank and under clear investment parameters.

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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?