The central bank is pursuing an unusual monetary policy.
(Photo: imago images/Andreas Haas)
The Swiss National Bank (SNB) made a loss of over CHF 130 billion last year. How could this have happened to an experienced central bank? Like some hedge funds, she speculated on credit. It spent large amounts of its own money, which appears as a liability on the balance sheet, and bought foreign securities with it, the prices of which then collapsed in 2022.
As a small country with a large financial center, Switzerland is experiencing a large influx of money. This drives up domestic prices and boosts the Swiss franc, which can become a problem for many companies. That is why the SNB countered this and sold francs in order to depress its rate, while at the same time getting the incoming money out of the country again. This is the reason for the unusual policy of the SNB.
But the example shows that speculation by a public institution on credit is a problem because the citizens bear the risk. The stock pension planned in Germany has a concept similar to that of the SNB. The state buys shares on credit for later pensions of the citizens. The pensioners bear the risk.
Sustainable finance for a sustainable economy
That may be acceptable as start-up financing, but it must not become permanent. Switzerland offers a cautionary tale. The integration of capital investments into the pension is basically a good idea that has been overdue for decades because there are too few children in Germany to keep the pay-as-you-go system in balance. In the medium term, however, the share purchases should definitely be financed from taxes or pension contributions. Then it remains a speculation, but at least not on credit. In addition, the state should use its fiscal leeway for urgently needed investments, for example in the environmental sector, digitization and armaments. This is the only way to have a sustainable economy with sustainable public finances.
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Incidentally, the famous Norwegian oil fund has a similar function to the unusual monetary policy of the SNB. It not only serves to protect the citizens, but also to get the money flowing into the country from oil sales out of the country in large numbers, in order to prevent a domestic price increase that would be ruinous in international competition.
The phenomenon that is to be prevented here has been known as the “Dutch Disease” since the 1970s, when the Dutch economy threatened to get out of balance due to massive gas exports. Ultimately, it affects many raw material countries or overly one-sided economies. What is important, however, is that the oil fund, like other sovereign wealth funds, is financed from current income, not from debt.
More: The SNB’s record loss