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Status of the Suisse National Bank (SNB) Monetary Policy

This post is also available in: French

Excerpt from: “Crystal Ball for Investing and Trading” Book.

Status of the Switzerland National Bank (SNB) Monetary Policy

In the first half of January 2015, the Court of Justice of the European Union (CJEU) decided that the authority for Quantitative Easing (QE) program is well within the mandate of the European Central Bank (ECB). A few days later, the Suisse National Bank (SNB) decided unexpectedly on January 15, 2015, to unpeg the Suisse Franc (CHF) from the euro. The CHF was pegged to euro at the rate of minimum CHF 1.20 since September 6, 2011.

To better understand the situation, a brief history of CHF (Suisse Francs—Schweitzer Franken) is presented.

Switzerland joined the Bretton Wood System in 1945 and pegged the CHF to the US dollar at a rate of $1 to 4.30521 CHF, or 1 CHF to buy 0.206418 grams of gold. Since the 1920s, there was a legal requirement for SNB to back the Suisse Franc by a minimum of 40% of gold. However, and following a referendum in 1999, this requirement was abandoned on May 1, 2000. Since then, the SNB sold part of its gold reserve until 2005.

It is interesting to know that following a citizen initiative, a referendum to back the CHF by gold again, with a gold reserve of 20%, took place on November 30, 2014. However, majority of Suisse citizens voted against this measure.

It is worthwhile reminding here that the Suisse Franc (CHF) is a fiat currency since May 1, 2000. The SNB is manipulating the valuation of CHF against other currencies, in particular, the euro, to manage the Suisse trade balance.

Meanwhile and since the so-called financial crisis of 2008, the SNB has increased its balance sheet from some CHF 100 Billion to around CHF 500 Billion. It is following the same inappropriate monetary policy of the Fed, ECB, BoE, BoJ, and PBoC to propel the country’s economy.

Due to relentless pressure from Politicians and Central Bankers to manipulate their fiat currency, the Paper money will progressively lose the citizen’s trust to eventually end up where its intrinsic value is, worth the printed paper of the bank notes, or virtually worthless. This process is going to occur also for the Suisse Franc.

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