The Swiss National Bank is one of the important central banks of the world. It carries out its monetary policies and other roles independently of the government of Switzerland. In 2007, the SNB celebrated its one hundred year anniversary from its founding in 1907.
Switzerland’s central bank has a wider mandate than some other national central banks do. The mandate of the Swiss National Bank is to conduct itself per the best interests for the whole country. It does have a main goal to guarantee price stability for Switzerland by considering the impacts of economic developments. Beyond this it also performs numerous other functions.
Switzerland has adopted a goal of price stability that is comparable with other internationally important central banks. The goal of the SNB is to see under 2% per year increases in the cost of consumer prices. They are concerned with inflation not getting out of hand as it misallocates capital and labor and also unfairly distributes wealth and income. The bank also has a special concern to avoid deflation, the continuous decline in the levels of prices. It is the middle ground of just below two percent which they work towards with their monetary policy decisions.
The SNB actually implements monetary policy to control inflation by guiding the interest rates for on sight deposits and by directing the money market liquidity. This influences the country’s overall interest rate. The bank uses the three month Libor measured in Swiss francs for the interest rate it references. One thing the SNB is not shy about is participating in the foreign exchange markets. They do this whenever necessary to impact monetary levels as they deem appropriate.
The Swiss National Bank also issues the Swiss franc notes and coins. The banknotes are created according to high standards for security as well as quality. They determine how many banknotes to issue based on payment purpose demands. As far as cashless payments go in Switzerland, the bank participates in the SIC Swiss Interbank Clearing System. They hold the accounts for the various institutions to clear the checks and other cashless payments.
Asset management is an area in which the Swiss National Bank is proactive. They manage both the country’s currency reserves and their gold reserves. Switzerland is unusual in keeping a 25% gold to franc note gold reserve and standard. They keep enough of currencies on hand to have ample room to adjust their monetary policy.
For several years, the bank instituted a 1.20 floor on Euro to Swiss franc exchange rates. Defending this level required massive purchases of Euros and sales of Swiss francs as conditions in the Euro zone deteriorated. Finally, Switzerland abandoned this three year old policy without warning in 2015. This caused massive chaos in world foreign exchange markets as speculators had built up enormous positions in Forex based on the SNB’s policy.
Like many central banks, the SNB is tasked with maintaining stability for the national financial system. They analyze risks to the system and find areas where they need to respond. They are also responsible for assisting with both designing and implementing the regulatory framework that governs the financial sector. The bank regulates financial market institutions that are considered to be systemically important.
Another interesting role that the Swiss National Bank carries out is as the banker to the Swiss Confederation. This means that it handles payments for the Confederation. The bank also issues any bonds and money market debt and is custodian for their securities. They carry out all transactions in foreign exchange on behalf of the Confederation as well.
The SNB is renowned for cooperating on the international monetary stage. They offer technical assistance and advice as needed, participate actively in the IMF, and coordinate international monetary actions in crises.
Finally, the Swiss National Bank compiles and releases statistics. These cover financial markets and banks in the country, direct investment, Swiss financial accounts, the balance of payments, and the country’s international investment position.