For the Swiss central bank, cash was king this quarter. The Swiss National Bank showed today how it turned one of the pitfalls of the country's status as a haven for currency speculators into a sturdy first-quarter profit of almost USD 12 billion.
Less than two years ago, the value of small Alpine nation's currency, the franc, was soaring as investors were bought it as a protection against economic uncertainty in the US and the euro area.
This had the effect of eating into Swiss exports and tourism, thereby hitting the country's economy. So the central bank decided to take the unusual step of putting a cap on its currency. It committed to spending whatever it took to keep the franc from rising above 1.20 francs per euro.
To keep the cap in place, the SNB bought piles of foreign currency, primarily euros, dollars and yen. By the first quarter of 2012, the bank had a loss of almost 1.6 billion francs due to the exchange rate against those three currencies.
But fast forward a year and the picture changed and the SNB could claim big gains in the dollar and euro as the threat of crisis recedes in the eurozone and U.S..
The central bank said its first-quarter 2013 profit of 11.2 billion Swiss francs (USD 11.95 billion) came mainly from exchange rate gains of 5.2 billion francs and valuation gains on shares of 4.9 billion francs, reflecting a rising stock market and strong dollar.
Since the start of 2013, the SNB said the dollar strengthened 4 per cent against the franc and the euro gained 0.9 per cent.
That offset losses from the franc strengthening against the Japanese yen and pound sterling. But it had "a slight valuation loss" of 100 million francs in the first quarter on its 1,040 tons of gold reserves, an amount that hasn't changed so far this year.
A popular referendum expected to go before voters within several years would ban the central bank from selling off any gold reserves or storing them abroad.
So the bank, which fears the initiative could tie its hands and hurt emergency preparedness, has been bowing to the demand for more transparency by supplying more details about the reserves, including that most are stored in Switzerland and nearly a third are stashed in England and Canada.
