Swiss National Bank to post $37-billion profit

The Swiss federal government and the country’s 26 cantons stand to benefit from a jackpot after the Swiss National Bank announced on Friday that it expects to report a record net profit of 38 billion francs ($37.3 billion) for 2014.

Swiss National Bank to post $37-billion profit
Swiss National Bank building in Zurich. Photo: SNB

Provisional calculations show the central bank gained 34 billion francs from its foreign currency holdings, including the American dollar which appreciated significantly in value against the Swiss franc in the past year.

Its profit on foreign currency positions included nine billion francs in interest and dividend income, 13 billion francs in price gains and 12 billion francs in exchange rate gains, the SNB said in a statement.

The results mark a reversal from 2013 when the central bank reported a loss of nine billion francs, denying shareholders and local governments any profit sharing.

The SNB said it would now be able to resume a payment of one billion francs to the federal government and cantons, in addition to supplementary payments yet to be announced.

The amount of these payments will be agreed by the bank and the federal department of finance.

A detailed financial report with final figures is set to be released on March 6th, while the bank’s annual report is due on March 26th.

Earlier this week, data from the SNB showed the total value of its foreign currency reserves had swelled to a record 495.1 billion francs by the end of December.
The bank has been hoarding foreign currency in a bid to hold down the value of the franc, which has been strengthening with the Russian rouble 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 strong franc could hurt the country's vital export industry.



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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?