July 21, 2010 8:01 PM EDT
The Swiss National Bank (SNB) reported exchange rate losses of over 14 billion Swiss Francs (CHF), which occurred after interventions to stop the appreciation of the Swiss Franc against the euro were abandoned in May. The total loss for the first half of 2010 was limited to approximately CHF 4 billion though thanks to the gains in value of around 1000 tons of gold reserves, and income from foreign currency holdings.
The SNB was heavily buying euros to stabilize the Swiss Franc's exchange rate, which increased its foreign currency investments by some CHF 132 billion in the first half of 2010. But the efforts to stabilize the currency, justified by the need to protect the stability and competitiveness of the Swiss economy, couldn´t be continued indefinitely. Eventually, the exchange rate for the euro went from 1.50 Francs in January to a record low of 1.30 Francs in the beginning of July.
The acknowledgment of this rather undesired outcome leaves the SNB open to critics, as many pointed out beforehand that interventions on the currency market never work.
Kurt Schiltknecht, a former chief economist of the SNB, is one of those calling those actions a grave mistake:
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"Such interventions are useless, that is known from previous attempts," he told the Swiss paper Handelszeitung.
The magnitude of the devaluation of the euro-denominated reserves is not insignificant with respect to the total assets of the central bank of just CHF 207 billion. But the immediate impact on the half-yearly results is much smaller thanks to gains of the still large gold reserves of the Swiss central bank. Although over two thirds of the original gold holdings of 3.400 tons were sold out at historical low prices in the 1990s, the remaining treasure amounted to CHF 34.7 billion.
In media reports Alessandro Bee, an economist at private Swiss Bank Sarasin, said the intervention policy already has raised political problems in the country, citing that many politicians and much of the public don't understand why the central bank purchased euros to rein in the franc's strength when the Swiss economy was rebounding.
Economists, don't share this view, however.
"When the global economy slows toward year-end, and the franc is in demand again, the export industry will be hurt and jobs may be lost," Bee said. "Maybe then they will understand."
David Marmet, chief economist at Zuercher Kantonalbank, was quotes as saying that The SNB's first-half loss was in line with expectations and shouldn't deter the central bank from future currency-market incursions if needed,
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