<p>Central banks have a lot of leeway from a balance sheet perspective to do these things. They can simply stop the practice of buying foreign currency when the CHF appreciates which would let it appreciate beyond 1.2. If it keeps appreciating they will book losses, but unless they are enormous, these typically don't make a dent in a central bank's balance sheet.</p>

<p>If it depreciates, they can use the foreign currency to buy CHF, or not. If they do not use it, then they book a profit, as the comments suggest. </p>

<p>In many cases, the legal implication of large loses or gains in the CB's balance sheet is a transfer to or from the country's treasury. Here's a recent example from Mexico <a href="http://www.bloomberg.com/news/articles/2016-04-11/mexico-to-receive-13-6-billion-from-central-bank-dollar-gains" rel="nofollow">Bloomberg Article</a></p>

CC BY-SA 3.0
2016-06-01T14:56:18.007Z
2016-06-01T14:56:18.007Z
Fix.B.
<p>I agree with you that, due to huge foreign currency positions, a weaker Swiss Franc would bring along huge gains for the SNB.</p>

<p>Note, however, that the SNB's actions are mainly driven by their Inflation target (which, by the way, is their legal mandate. They don't have to make profits). </p>

<p>So if Inflation starts to pick up the pace, they are bound to contract their monetary policy, by selling foreign currencies (or raising interest rates), irrespective of the gains.</p>

<p>By the way, you'll find data for their foreign currency positions <a href="https://data.snb.ch/en/topics/snb#!/cube/snbimfra" rel="nofollow noreferrer">here</a>.</p>

CC BY-SA 3.0
2016-06-24T13:36:57.213Z
2017-06-20T06:04:45.447Z
2017-06-20T06:04:45.447Z
Chris tie
<p>The Swiss National Bank has been enforcing a currency floor since 2011, not allowing the EUR/CHF rate to drop below 1.20 by buying unlimited amounts of foreign currency as needed with newly created CHF.</p>

<p>I'm having trouble finding exact amounts, but it seems from their <a href="http://www.snb.ch/ext/stats/balsnb/pdf/deen/A1_Ausweise_der_SNB.pdf">balance sheet</a> that their foreign currency reserves have increased by about CHF200bn since 2011.</p>

<p>How will they unwind this situation? They state that they still view CHF as overvalued at the 1.20 rate, so presumably they would let it drop some way from that before they start selling the reserves, leaving them with a gain in CHF. Will they just leave the money base permanently contracted to account for this? What long-term impacts will this have?</p>

<monetary-policy><money-supply>
How might the Swiss currency floor be unwound?
Ganesh Sittampalam
# How might the Swiss currency floor be unwound?

(Asked by: username_0 on 2014-12-04)

The Swiss National Bank has been enforcing a currency floor since 2011, not allowing the EUR/CHF rate to drop below 1.20 by buying unlimited amounts of foreign currency as needed with newly created CHF.

I'm having trouble finding exact amounts, but it seems from their [balance sheet](http://www.snb.ch/ext/stats/balsnb/pdf/deen/A1_Ausweise_der_SNB.pdf) that their foreign currency reserves have increased by about CHF200bn since 2011.

How will they unwind this situation? They state that they still view CHF as overvalued at the 1.20 rate, so presumably they would let it drop some way from that before they start selling the reserves, leaving them with a gain in CHF. Will they just leave the money base permanently contracted to account for this? What long-term impacts will this have?

**Tags:** monetary-policy, money-supply

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## 2 answers

### Answer by username_1 on 2016-06-01. Score: 1

Central banks have a lot of leeway from a balance sheet perspective to do these things. They can simply stop the practice of buying foreign currency when the CHF appreciates which would let it appreciate beyond 1.2. If it keeps appreciating they will book losses, but unless they are enormous, these typically don't make a dent in a central bank's balance sheet.

If it depreciates, they can use the foreign currency to buy CHF, or not. If they do not use it, then they book a profit, as the comments suggest.

In many cases, the legal implication of large loses or gains in the CB's balance sheet is a transfer to or from the country's treasury. Here's a recent example from Mexico [Bloomberg Article](http://www.bloomberg.com/news/articles/2016-04-11/mexico-to-receive-13-6-billion-from-central-bank-dollar-gains)


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### Answer by username_2 on 2016-06-24. Score: 1

I agree with you that, due to huge foreign currency positions, a weaker Swiss Franc would bring along huge gains for the SNB.

Note, however, that the SNB's actions are mainly driven by their Inflation target (which, by the way, is their legal mandate. They don't have to make profits).

So if Inflation starts to pick up the pace, they are bound to contract their monetary policy, by selling foreign currencies (or raising interest rates), irrespective of the gains.

By the way, you'll find data for their foreign currency positions [here](https://data.snb.ch/en/topics/snb#!/cube/snbimfra).


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