The Swiss National Bank sold 22.3 billion Swiss francs worth of foreign currencies in 2022, a reversal from the previous year’s purchases. Read on to know more about the reasons behind this move and its implications.
Swiss National Bank’s Foreign Currency Interventions in 2022
The Swiss National Bank (SNB) recently released its annual report, which revealed that it sold 22.3 billion Swiss francs ($23.97 billion) worth of foreign currencies in 2022. This was a significant reversal from the previous year when the central bank bought 21.1 billion francs worth of foreign currencies.
The SNB is known for its currency interventions, where it buys or sells foreign currencies to control the value of the Swiss franc. The bank usually intervenes when the franc is overvalued, as a strong currency can hurt the country’s exports and overall economic growth.
Reasons Behind the SNB’s Currency Intervention
One of the primary reasons behind the SNB’s decision to sell foreign currencies in 2022 was the strengthening of the Swiss franc against the euro. The franc appreciated by around 5% against the euro in 2022, which made Swiss exports more expensive and less competitive in the European markets.
The SNB’s currency interventions are also aimed at maintaining price stability in the country. The bank has a target inflation rate of 2%, and a strong currency can lead to deflationary pressures, making it harder to achieve this target.
Furthermore, the SNB’s decision to sell foreign currencies was also influenced by the global economic situation. The COVID-19 pandemic had a significant impact on the global economy, with many countries implementing stimulus measures to support their economies. These measures led to a weakening of their currencies, which in turn, made the Swiss franc stronger.
Implications of the SNB’s Currency Intervention
The SNB’s decision to sell foreign currencies has both positive and negative implications for the Swiss economy. On the one hand, it will help Swiss exporters by making their products more competitive in the global markets. This will support the country’s economic growth and create more job opportunities.
On the other hand, the SNB’s currency intervention could also lead to higher inflation in the country. By selling foreign currencies, the bank injects Swiss francs into the economy, which can increase the money supply and lead to higher prices.
Furthermore, the SNB’s intervention can also lead to a loss of confidence in the Swiss franc among international investors. If the bank continues to sell foreign currencies, it could signal that it has lost faith in the strength of the Swiss franc, leading investors to move their money elsewhere.
Conclusion
In conclusion, the SNB’s decision to sell 22.3 billion Swiss francs worth of foreign currencies in 2022 was primarily driven by the strengthening of the Swiss franc and the need to maintain price stability in the country. While the move will help Swiss exporters, it could also lead to higher inflation and a loss of confidence in the Swiss franc.
