The Swiss National Bank is letting go

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Did the Swiss National Bank (SNB) give in to the pressure or did it want to prevent it from getting too big? The press release published on Friday evening, after the closure of the Swiss stock exchange, obviously does not suggest. In any case, he took everyone by surprise since he was only expected in a few weeks.

The new agreement between the Federal Department of Finance and the SNB opens the door to increased payments of its profits to public authorities. Covering the period 2020 (with retroactive effect) to 2025, it provides that Switzerland’s monetary policy body may distribute up to 6 billion francs to the cantons and the Confederation, on the express condition that its financial situation is allow.

A payment of 6 billion in 2020

The mechanism provides for a base of 2 billion francs, which amount is paid if at least equivalent profit is entered in the balance sheet. In addition, there are four possible additional distributions of CHF 1 billion each. These are carried out if the profit entered in the balance sheet reaches 10, 20, 30 or 40 billion francs.

As the conditions for a maximum distribution are met for the financial year 2020, an amount of CHF 6 billion will be paid to the Confederation and the cantons. At the beginning of January, the SNB announced to forecast a profit of 21 billion francs for this financial year. After the integration of reserves for future distributions, it will carry an amount of 98 billion to its balance sheet.

To read: SNB forecasts a profit of CHF 21 billion in 2020

A step considered insufficient

For Sergio Rossi, professor of monetary policy at the University of Friborg, the new agreement represents a “small step, still quite insufficient”. According to him, the SNB should decide on a larger extraordinary distribution and, in the current circumstances, directly to the people. In December, 84 billion francs in reserves appeared on the bank’s balance sheet.

Alongside other economists, Charles Wyplosz created a few weeks ago an observatory of the monetary issuing institute. Without going as far as Sergio Rossi on the mechanisms to be implemented, he qualifies the operation carried out as “a small surface cleaning”. He observes that since the National Bank became active on the foreign exchange market, its nature has changed, which raises fundamental questions about the mode of redistribution of its profits.

In his eyes, the rapid publication of this new agreement aims to avoid making “certain cantons salivate”. Not sure, however, that it is fully sufficient to calm the demands of certain politicians in the face of the scale of the current crisis. Last year, the Confederation spent CHF 31 billion to mitigate the impact of the measures taken. While the month of January is not over, it has already committed 15 billion francs for 2021.

Read about it: Charles Wyplosz: “The power of the SNB must not be absolute”