Article 06 · SNB · FX Intervention · Balance Sheets
Fighting Gravity
Why the SNB Prints Money to Weaken Its Own Currency
The Bank of Japan spends its days fighting a currency that keeps falling. The Swiss National Bank has spent two decades fighting the opposite war: a currency the whole world refuses to stop buying. Its weapon of choice is the printing press, and the consequence is a central bank balance sheet larger than the entire Swiss economy, stuffed not with Swiss bonds but with foreign assets, including some of the largest foreign holdings of American tech stock on record.
The Inverted Problem
A Central Bank at War With Its Own Strength
Most central banks that intervene in currency markets are defending a weak currency: selling scarce dollar reserves to stop a collapse. Switzerland’s problem is inverted. The franc’s status means that every crisis anywhere on earth (a eurozone debt panic, a pandemic, a war) sends a wave of foreign capital into Swiss assets. Each wave bids the franc higher.
For a large, closed economy, a strong currency is a nuisance. For Switzerland, a country of nine million people that earns roughly 75% of its GDP from trade, it is an existential threat. The SNB’s core battle is therefore not against inflation or deflation in the ordinary sense. It is against gravity: the relentless upward pull of global demand for its own currency.
The Damage
How a Strong Franc Bankrupts an Exporter
Consider a watchmaker in Geneva. Its costs (salaries, rent, components) are all in francs. Its customers are in Germany, paying in euros. The watch is priced at CHF 10,000, and the watchmaker cannot change what a franc costs abroad. The exchange rate does that for them:
At EUR/CHF 1.20: CHF 10,000 ÷ 1.20 = €8,333
the German buyer’s price with a weak-ish franc
At EUR/CHF 1.00: CHF 10,000 ÷ 1.00 = €10,000
the identical watch after the franc strengthens to parity
Price increase forced on the customer: +20%
no decision was taken in Geneva: the currency did it alone
A 20% price hike the exporter never chose. Either the German customer pays it (and many will not) or the watchmaker cuts its euro price and absorbs the hit directly out of its margin. Repeat that across pharmaceuticals, precision machinery, and chocolate, and the arithmetic becomes national: margins compress first, then production leaves Switzerland entirely for euro-cost jurisdictions.
There is a second, quieter channel. A strong franc makes every import cheaper: energy, food, raw materials. That sounds pleasant until it becomes imported deflation: falling prices feed falling wages and postponed spending, the spiral Japan spent two decades trying to escape. The SNB has stared at both threats simultaneously for most of this century.
The Mechanism
Printing Francs to Sell Them
So how does a central bank push its own currency down? By doing the one thing no speculator on earth can match: creating the ammunition from nothing. The SNB prints new francs (an entry on its own balance sheet, its own liability) and sells them in the market for euros and dollars. More francs supplied, more foreign currency demanded: the franc weakens, or at least rises more slowly.
Note the deep asymmetry with the usual currency war. A central bank defending a weak currency must sell foreign reserves it can run out of. A central bank fighting strength sells something it can manufacture without limit. This is what made the SNB’s famous (the EUR/CHF 1.20 line it defended from 2011 to 2015) theoretically impregnable: the defence consists of printing your own liability.
The Asymmetry
Every printed franc, once sold, becomes a foreign asset the SNB must hold. Fighting gravity, it turns out, is not free. It is paid for in balance sheet.
The Evidence
A Balance Sheet Larger Than the Country
The cost of two decades of intervention, in one line. In 1996 the SNB’s total assets were about CHF 73 billion, a normal central bank for a small country. Today they stand near CHF 914 billion, above the dashed line marking Switzerland’s entire annual GDP of roughly CHF 830 billion. Each surge in the chart is a crisis somewhere else in the world, met with freshly printed francs.
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The Consequence
The Accidental Hedge Fund
Compare the two giants of balance-sheet expansion. The Bank of Japan’s assets also exceed 100% of GDP, but they are overwhelmingly Japan’s own government bonds, bought through to suppress domestic yields. The SNB’s assets exceed 100% of GDP too, but they are almost entirely foreign: over CHF 700 billion in foreign-currency investments, the residue of every franc ever printed and sold.
And that money has to be parked somewhere. Roughly three-quarters sits in foreign government and corporate bonds. But around a fifth to a quarter is in equities: index-tracking positions that make the SNB one of the largest foreign holders of US tech stock, with multi-billion-dollar stakes in Apple and Microsoft. A century-old Swiss institution founded to safeguard the franc has become, by structural necessity, a giant sovereign hedge fund.
The profit-and-loss swings are commensurate. In 2022, falling global bond and equity markets handed the SNB a loss of CHF 132 billion, the largest in its history, roughly 15% of Swiss GDP. No bailout followed, and none was needed: an institution whose liabilities are francs it can itself create cannot go illiquid in them. The loss simply meant no dividend for the cantons that year.
But the arrangement has a breaking point, and the SNB found it once. From 2011 to 2015 it did not merely lean against the wind: it drew a hard line at EUR/CHF 1.20 and promised to defend it in unlimited quantities. What happened when that promise met the European Central Bank’s printing press is the subject of the next article: Francogeddon.
Key Numbers
CHF 914bn
SNB total assets today
Versus ~CHF 73bn in 1996: a twelvefold expansion, nearly all of it foreign assets.
>100%
Balance sheet as a share of Swiss GDP
The BOJ holds its own government’s bonds; the SNB holds the world’s.
~25%
Foreign reserves held in equities
Including multi-billion stakes in Apple and Microsoft: an index fund with a printing press.
CHF 132bn
Record loss, 2022
Roughly 15% of GDP, absorbed without a bailout: the loss was in a currency it prints.