SND Foreign-Currency Holdings Hit Record on Intervention
By Simone Meier
June 7 (Bloomberg) — The Swiss central bank’s foreign- currency reserves surged to a record in May as the euro region’s increasing turmoil forced policy makers to step up their defense of the franc floor. Currency holdings rose to 303.8 billion Swiss francs ($318 billion) at the end of May from 237.6 billion francs in the previous month, according to a statement published on the Swiss National Bank’s website today. Walter Meier, a spokesman at the SNB in Zurich, said by telephone that a “large part” of the increase was due to currency purchases to defend the minimum exchange rate of 1.20 versus the euro.
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why Bund at a super high 146 ?
not only to fly to quality..
not only to invest in Mark if the Euro break..
but also becuase Swiss Central Bank invest the Euro
that obtain in exchange of Franc in Bund.. cost of fixed 1.2 Euro/CHF go in Bund..
Just last week the NGDP targeting crowd was claiming the SNB policy a success for not having to intervene (http://bubblesandbusts.blogspot.com/2012/06/swiss-struggle-to-maintain-currency.html). This supposedly showed the strength of the expectations channel and supported their views. Clearly this has not been the case, but I doubt many in that camp will accept this story as a sign of central bank weakness.
A number of people in the NGDP Targeting camp were recently using the “success” of the SNB’s currency floor as support for their preferred policy. Looks like the Swiss are struggling to maintain the peg (http://bubblesandbusts.blogspot.com/2012/06/swiss-struggle-to-maintain-currency.html) and accepting currency risk to boot.
Off-topic but close (at least geographically)
“My dog had a leak on the carpet” or a nice little piece of British Euro-sceptic propaganda:
“In 1992, Britain learnt the hard way that it was not to be trifled with. Although George Soros is remembered as the man who broke sterling on Black Wednesday, the Bundesbank played the vital role.
According to legend, Helmut Schlesinger, the Bundesbank’s hard-line president of the time, came to the opinion that the UK had joined the Exchange Rate Mechanism (ERM) at the wrong rate and wanted it out.
At the time, post reunification, the Bundesbank was trying to contain a consumption-led boom with high interest rates. Britain was in a slump and running a completely inappropriate rates policy to stay in the ERM.
Soros’s right-hand man, Richard Medley, was receiving detailed briefings from Bundesbank officials, who were making it clear they believed that sterling was unsustainable and wanted to break it. Medley encouraged Soros to take big bets against the pound just as the Bundesbank went on record saying sterling would have to be devalued.
In one of the most humiliating moments in UK economic history, on September 16 1992, the UK was kicked out of the ERM. Shortly afterwards, Italy was ejected, with Soros and the Bundesbank again in cahoots behind the scenes. Only when the markets turned on France did the Bundesbank stop the rot. As Soros later said: “I felt safe betting with the Bundesbank. The Bundesbank clearly wanted the pound and lira devalued, but it was prepared to defend the French franc. I did better than some others by sticking to the Bundesbank’s side.”
Traders and economists have drawn analogies between 1992 and the current crisis. Like then, there will come a point when the Bundesbank decides enough is enough. Greece is expendable, as the Bundesbank recently made clear by saying its exit from the euro would be “manageable”, but Spain, Mayer says, is too big. ”