Swiss central bank buys eurozone debt: S&P

The Swiss central bank (SNB) is shoring up the eurozone's government bond market and holding down the interest rates which five key countries pay to borrow, ratings agency Standard & Poor's estimated on Tuesday.

Swiss central bank buys eurozone debt: S&P
Photo: Swiss National Bank

"We believe the SNB has purchased an estimated €80 billion ($103 billion) of core government debt during the first seven months of 2012", S&P said in a report, referring to bonds issued by Germany, France, Netherlands, Finland, and Austria.

SNB's eurozone bond purchases to July represented 48 percent of the European public sector's financing needs, S&P said, up from about 9.0 percent in 2011.

The SNB's policy is against a background of inflows of funds placed in the Swiss franc by foreign investors concerned about the eurozone debt crisis.

The Swiss national bank is trying to hold down the value of the Swiss franc, the report noted.

This has led to "an unprecedented surge in the foreign exchange reserves" held by the SNB to 79 percent of gross domestic product (GDP) in mid-2012 from 15 percent in mid-2008, it added.

This "euro-recycling … has significantly contributed to the declining yields on bonds issued by the core sovereigns" in 2012, the report indicated, from 3.04 percent in 2011 to 2.15 percent so far this year.

While the report cautioned that its estimates were subject to uncertainty since the SNB did not detail its foreign exchange holdings by country, "the scale of the buying is without question extensive."

Member comments

Log in here to leave a comment.
Become a Member to leave a comment.


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“We do know there is more cash being currently withdrawn in large notes, but it changes hands less often” Sarah Lein, a monetary policy expert from the University of Basel told SRF public broadcaster.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