Swiss National Bank Q1 2020: $94 Billion in US Equities
Did you know that Switzerland’s central bank, called the Swiss National Bank (SNB), owns approximately $94 billion of publicly traded US equities such as Facebook, Apple, Amazon, Netflix, and Google? Its top holding is in Apple, with over $4 billion worth of shares in the company. The SNB’s filing statement was released on Friday, showing ownership of 2,480 holdings as of its quarter end.
The SNB provides insight into the possible future of central banking while also illustrating a failure in economic policies. The bank, similar to the Federal Reserve, has been partaking in expansionist monetary policies in attempts to best manage the economy but differs in its reasons for doing so. According to a statement made by SNB chairman Thomas Jordan:
We must counteract increased upward pressure on the Swiss franc. We have therefore decided to scale up our foreign exchange market interventions—a tried-and-tested instrument—to shield the Swiss economy.
Per the bank, its expansionist monetary policies are important to provide downward pressure on the value of the franc. The chairman continued his stance with a speech over the weekend, Reuters reported:
The appreciation on the franc as a safe haven has become enormous. Without the SNB’s monetary policy we would see a completely different franc exchange rate in the current situation.
The mainstream media and academic community provide little explanation for this, as Professor Michael Graff from the Swiss Economic Institute was quoted by the Financial Times:
The SNB is one of the sacred cows of Switzerland. You don’t criticise the SNB.
Central banking is important to maintain economic order. Without these bankers, who are mostly economists, the world would be much worse. Or would it? The SNB has a mandate of price stability and focuses largely on controlling the exchange value of the franc, while the Federal Reserve seeks to promote maximum employment and stable prices. Neither mandate is much different than the “sacred cow” statement above and perhaps both are intentionally vague; however, they are the mandates central bankers use to justify their actions.
SNB fears the Swiss franc would appreciate “too much” and that this would be bad for the economy. Economists often cite how exports will hurt, yet no one asks about imports, the rise of purchasing power, lowered consumer prices, the cost of living, increases in savings, or positive interest rates. Instead, we hear of the importance of embarking on expansionary policies to save a nation from the dangers of a strong currency. Thus, to avoid danger, the Swiss are “forced” to inflate their currency. But, they must invest this money somewhere. So why not purchase ownership in dividend-paying companies in the USA?
At what point in time, this crisis or the next, will interest rates go negative? And what happens if the US dollar becomes “too high” or another crisis emerges requiring a new Fed intervention such as buying equities? Issues around sovereignty also arise: What happens if a central bank owns enough shares in a publicly traded company to start voting in, or making a hostile bid for, publicly traded companies?
Or maybe it's best not to ask such things. Perhaps the sacred cow is no different than the gift horse and it’s probably best not to look it in the mouth. Sadly, when it comes to inflationary monetary policies, they never actually work. It just takes time for everyone to notice.