Swiss National Bank President Thomas Jordan said the franc remains high and weighs on companies in Switzerland.
“The franc at its current level still has a high value,” Jordan said in Bern late yesterday. “This burdens a lot of companies -- especially in a phase of moderate global economic growth.”
The SNB, which introduced a minimum exchange rate of 1.20 francs per euro in September 2011, has piled up foreign-currency reserves worth 424 billion francs ($454 billion) defending that ceiling. The SNB has enforced this franc cap “with determination and is prepared to buy foreign currency in unlimited quantities,” Jordan said yesterday.
“The franc is seen as a safe harbor in the storm,” he said, adding that the minimum exchange rate has shielded Switzerland from “major damage” and remains the right and necessary measure for the SNB to fulfill its mandate of price stability.
The franc appreciated 0.1 percent yesterday to 1.20302 per euro, the strongest level since Sept. 5.
Still, “the minimum rate is a response to exceptional circumstances and is not a remedy for problems of any kind or an instrument to fine-tune the economy,” Jordan said.
The expansion of the SNB’s balance sheet, which is five times the size it was in June 2007, has created “substantial risks,” he said. “We have to expect that because of the new size and structure of the balance sheet, fluctuations in value may be much greater in the future than they have been in the past.”
At the same time, the idea of creating a sovereign wealth fund for managing the SNB’s currency reserves isn’t ideal as it “would not facilitate monetary policy with regard to the enforcement of the minimum exchange rate,” he said.
“The current size and composition of the central bank balance sheet are a direct reflection of monetary policy,” Jordan said. “If limitations were placed on the SNB balance sheet, its room for maneuver in the monetary-policy domain would be restricted.”