Swiss National Bank (SNB)

The Swiss National Bank, based in Berne and Zurich, conducts Switzerland’s monetary policy as an independent central bank. It is also responsible for issuing Swiss franc banknotes. The majority of SNB’s shares belong to cantons and banks of cantons, and the smaller remainder is in the possession of private individuals. The primary goal of the SNB is to ensure price stability, which is defined as a rise in consumer prices of less than 2 percent per year. The SNB’s supreme managing and executive body is the Governing Board. It is in particular responsible for the monetary policy, asset investment strategy and international monetary cooperation.

The SNB is not a systematically important central bank as the Fed or the ECB, but it is still a significant player, due to the internationally recognized stability of the Swiss banking system and the franc. The importance of the SNB was clearly seen on January 15, 2015, when the Swiss central bank surprisingly decoupled from the euro peg, causing the Swiss franc to rally up 23 percent, an unprecedented move in the currency market, which increased safe-haven demand for gold.

The SNB introduced a minimal exchange rate at CHF 1.20 per euro (0.83 euro per franc) in September 2011 in order to resist the currency appreciation. The peg worked quite well, but not without costs. The SNB expanded its balance sheet to 80 percent of GDP and the foreign currency reserves doubled from around 250 billion to 500 billion francs. Thus, the SNB removed the peg due to concerns about the large expansion of the money supply (see the chart below).

Chart 1: Swiss money supply (M3) from December 2004 to December 2014 (in billions of Swiss francs).

Swiss money supply in CHF and gold

After the decoupling of the peg, the SNB lowered the interest rate for balances held on sight deposit accounts from -0.25% to -0.75%, in order to deter the capital inflows and currency appreciation. Therefore, gold has become relatively cheaper to hold as a safe-haven asset compared with the Swiss franc.

Swiss National Bank and Gold

There is strong positive sentiment toward gold in Switzerland. The Swiss people abandoned the gold standard no earlier than in May 2000. Until that year, the Swiss franc had had to be backed by a minimum of 40 percent in gold reserves (this is why the Swiss franc has historically been considered a safe-haven currency). Switzerland remains the world’s gold hub. Most of the gold produced in the world transits physically through this country, where four of the world’s major refineries are located.

SNB’s Official Gold Reserves

Gold reserves are gold held by the central bank as a store of value, as a guarantee of payment to depositors or as a way of securing the currency. The SNB has about 1,000 tons of bullion. About 30 percent of Swiss gold is situated outside the country (in the UK and Canada). The SNB holds currently only around 8 percent of its total assets in gold. This is why in November 2014, there was a referendum on the ‘Swiss Gold Initiative’, which proposed that the SNB should not have the right to sell its gold reserves, the gold of the SNB should be stored physically in Switzerland and the SNB should have to hold at least 20 percent of its total assets in gold. The referendum was voted down. In 2015, Switzerland decided to hold a referendum to determine whether to ban commercial banks from creating money.

We encourage you to learn more about gold – not only how it is affected by the SNB’s actions, but also how to successfully use the shiny metal as an investment and how to profitably trade it. A great way to start is to sign up for our gold newsletter today. It's free and if you don't like it, you can easily unsubscribe.