Central bank dramatically boosts currency reserves

Switzerland's central bank dramatically increased its foreign currency reserves last month as it moves to keep the heated franc from getting too strong, figures released on Wednesday showed.

Central bank dramatically boosts currency reserves
Photo: Malcolm Curtis/The Local

The value of the Swiss National Bank's foreign currency reserves soared in December by 33 billion Swiss francs ($32.6 billion), bringing the total reserve to a record 495.1 billion francs.
The bank has been struggling to hold down the value of the franc, which has been strengthening with the Russian ruble crisis sending investors scurrying to the safe haven currency.
The prospect of further stimulus measures by the European Central Bank has also been putting extra pressure on the franc.
SNB has vowed to buy "unlimited quantities" of foreign currencies to protect an exchange-rate floor of 1.20 francs to the euro it introduced in September 2011, as a strengthening franc was creating headaches for exporters.
Also in a bid to protect the floor, the bank announced on December 18th it would introduce negative interest rates for the first time in decades.
In addition to SNB's purchasing of more foreign currency, a strengthening American dollar also contributed to the increased value of the bank's reserves.

While the Swiss currency remains strong against the euro, its has lost value against the US dollar, which last week exceeded parity with the Swiss franc for the first time since late November 2010.

In midday trading on Wednesday the dollar was fetching 1.01 francs.

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“We do know there is more cash being currently withdrawn in large notes, but it changes hands less often” Sarah Lein, a monetary policy expert from the University of Basel told SRF public broadcaster.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