<p>This quotation by Michael Bordo, Owen F Humpage, and Anna J Schwartz (2012) was the richest description I could find on how the SNB achieved the floor:</p>

<blockquote>
  <p>In March 2008, the Swiss National Bank eased monetary policy in
  response to expectations of deflation, deteriorating economic
  conditions, financial-market distress, and a Swiss franc appreciation
  that resulted from the global financial crisis. In conjunction with
  this action, the Bank aggressively bought euros in the
  foreign-exchange market in 2009. Throughout March and April 2009, the
  Swiss National Bank did not seem to sterilise its substantial
  foreign-exchange purchases; the Swiss monetary base rose by more than
  the value of foreign assets on the Bank’s books. In response, the
  Swiss franc depreciated. By April 2009, however, the Swiss monetary
  base had more than doubled from a year earlier, and the Bank – now
  concerned about latent inflation – began to sterilise the liquidity
  resulting from its huge interventions. The Swiss interventions
  continued through June 2010, but the Swiss monetary base either grew
  by less than the Swiss National Bank’s holdings of foreign assets, or
  the monetary base actually declined. The Bank was clearly sterilising
  the operations, and the franc appreciated by nearly 10% between April
  2009 and June 2010. On balance, from May 2010 to August 2011, the
  Swiss monetary base contracted and the franc appreciated, reaching an
  historic high on a real trade-weighted basis.</p>
  
  <p>In early August 2011, the Swiss National Bank announced a series of
  new measures to inject liquidity into financial markets with the
  objective of stemming the Swiss franc’s appreciation. The operations
  included foreign-exchange swaps in which the Bank sold francs spot and
  repurchased them forward. The franc depreciated sharply, but undertook
  a stunning reversal late in the month. The Swiss National Bank then
  announced that it was prepared to buy foreign exchange in unlimited
  quantities to maintain a floor of SF 1.20 vis-à-vis the euro. The
  Bank’s holdings of foreign exchange increased substantially, but the
  Swiss monetary base increased by even more. Since September, the Swiss
  National Bank has maintained an exchange-rate floor, by giving up
  control of its monetary base in conformity to the fundamental
  trilemma.</p>
</blockquote>

<p><a href="http://www.voxeu.org/article/notes-currency-wars-trilemma-international-finance" rel="nofollow noreferrer">Foreign-exchange intervention and the fundamental trilemma of international finance: Notes for currency wars</a>  </p>

<p>If they are not controlling their monetary base they probably be doing standard currency interventions. That is, they credit their own accounts at banks with CHF, then using those credited accounts to purchase Euro denominated assets. Or perhaps, they enter into spot Euro-CHF FX transactions and use the proceeds to buy Euro denominated assets. If they were selling gold then they'd sell gold for dollars and buy euros with dollars. That might modestly move the Euro-USD  exchange rate but would affect the Euro-CHF rate only indirectly. But the Swiss monetary base shouldn't be increasing.</p>

<hr>

CC BY-SA 3.0
2015-01-21T14:06:41.503Z
Interesting that even this seemingly authoritative source takes a somewhat speculative tone.  I guess some of this is simply not public information.  But an informative answer, regardless.
zkurtz
CC BY-SA 3.0
2015-01-21T14:07:39.227Z
Why not buy EUR directly with gold?  (Why involve USD?)
zkurtz
CC BY-SA 3.0
2015-01-21T14:16:42.450Z
My understanding is that most commodities are priced in dollars so when you sell them you get dollars unless you do something special. For example, the London gold fix is in dollars (http://www.lbma.org.uk/pricing-and-statistics).
BKay
CC BY-SA 4.0
2015-01-21T13:56:09.747Z
2019-05-28T13:48:42.553Z
2019-05-28T13:48:42.553Z
BKay
<p>To peg its currency (CHF) to the Euro (EUR), the Swiss National Bank (SNB) made purchases of EUR to the tune of several hundred billion.  By reducing the supply of EUR, the SNB made the EUR relatively valuable, achieving the peg.</p>

<p>But how did the SNB fund its EUR purchases?  My original assumption was that the SNB simply printed CHF to buy EUR.  Is this correct?</p>

<p>The reason I ask is (a) I have not been able to find explicit documentation of this and (b) a colleague suggested that the SNB may have been using other means to purchase EUR, such as tapping into gold reserves or other kinds of reserves.</p>

<central-banking><currency-peg>
What did the Swiss National Bank use to purchase EUR while pegging the Franc to the Euro?
zkurtz
# What did the Swiss National Bank use to purchase EUR while pegging the Franc to the Euro?

(Asked by: username_0 on 2015-01-21)

To peg its currency (CHF) to the Euro (EUR), the Swiss National Bank (SNB) made purchases of EUR to the tune of several hundred billion. By reducing the supply of EUR, the SNB made the EUR relatively valuable, achieving the peg.

But how did the SNB fund its EUR purchases? My original assumption was that the SNB simply printed CHF to buy EUR. Is this correct?

The reason I ask is (a) I have not been able to find explicit documentation of this and (b) a colleague suggested that the SNB may have been using other means to purchase EUR, such as tapping into gold reserves or other kinds of reserves.

**Tags:** central-banking, currency-peg

---

## 1 answers

### Answer by username_1 on 2015-01-21. Score: 5 | Accepted answer

This quotation by Michael Bordo, Owen F Humpage, and Anna J Schwartz (2012) was the richest description I could find on how the SNB achieved the floor:

> In March 2008, the Swiss National Bank eased monetary policy in
> response to expectations of deflation, deteriorating economic
> conditions, financial-market distress, and a Swiss franc appreciation
> that resulted from the global financial crisis. In conjunction with
> this action, the Bank aggressively bought euros in the
> foreign-exchange market in 2009. Throughout March and April 2009, the
> Swiss National Bank did not seem to sterilise its substantial
> foreign-exchange purchases; the Swiss monetary base rose by more than
> the value of foreign assets on the Bank’s books. In response, the
> Swiss franc depreciated. By April 2009, however, the Swiss monetary
> base had more than doubled from a year earlier, and the Bank – now
> concerned about latent inflation – began to sterilise the liquidity
> resulting from its huge interventions. The Swiss interventions
> continued through June 2010, but the Swiss monetary base either grew
> by less than the Swiss National Bank’s holdings of foreign assets, or
> the monetary base actually declined. The Bank was clearly sterilising
> the operations, and the franc appreciated by nearly 10% between April
> 2009 and June 2010. On balance, from May 2010 to August 2011, the
> Swiss monetary base contracted and the franc appreciated, reaching an
> historic high on a real trade-weighted basis.
>
> In early August 2011, the Swiss National Bank announced a series of
> new measures to inject liquidity into financial markets with the
> objective of stemming the Swiss franc’s appreciation. The operations
> included foreign-exchange swaps in which the Bank sold francs spot and
> repurchased them forward. The franc depreciated sharply, but undertook
> a stunning reversal late in the month. The Swiss National Bank then
> announced that it was prepared to buy foreign exchange in unlimited
> quantities to maintain a floor of SF 1.20 vis-à-vis the euro. The
> Bank’s holdings of foreign exchange increased substantially, but the
> Swiss monetary base increased by even more. Since September, the Swiss
> National Bank has maintained an exchange-rate floor, by giving up
> control of its monetary base in conformity to the fundamental
> trilemma.

[Foreign-exchange intervention and the fundamental trilemma of international finance: Notes for currency wars](http://www.voxeu.org/article/notes-currency-wars-trilemma-international-finance)

If they are not controlling their monetary base they probably be doing standard currency interventions. That is, they credit their own accounts at banks with CHF, then using those credited accounts to purchase Euro denominated assets. Or perhaps, they enter into spot Euro-CHF FX transactions and use the proceeds to buy Euro denominated assets. If they were selling gold then they'd sell gold for dollars and buy euros with dollars. That might modestly move the Euro-USD exchange rate but would affect the Euro-CHF rate only indirectly. But the Swiss monetary base shouldn't be increasing.

---

> **Comments:**
> **username_0**: Interesting that even this seemingly authoritative source takes a somewhat speculative tone.  I guess some of this is simply not public information.  But an informative answer, regardless.  
> **username_0**: Why not buy EUR directly with gold?  (Why involve USD?)  
> **username_1**: My understanding is that most commodities are priced in dollars so when you sell them you get dollars unless you do something special. For example, the London gold fix is in dollars (http://www.lbma.org.uk/pricing-and-statistics).  

---

