Swiss National Bank's currency manipulations didn't pay off last year

ZeroHedge reports that the Swiss National Bank (SNB) lost a huge amount in the value of its assets last year.  Like other governments, which manipulate exchange rates, it has been buying foreign assets for years in order to keep the exchange rate of its currency low so that its manufacturers that produce exports or compete with imports could make more money.  In the meantime, the manufacturers in the countries whose currencies they buy make less money and often go broke.

The problem is that the foreign assets that the SNB has been purchasing lost value last year due to simultaneous crashes in the prices of stocks and bonds that occurred in the United States and other countries.  Here's an excerpt from their story about it:

On Monday, the SNB reported an annual loss of 132 billion Swiss francs, or $143 billion, for fiscal 2022, the biggest loss in its 115-year history as falling stock and fixed-income markets hit the value of its share and bond portfolio. The recent drop in the US Dollar also did not help. ...

According to the bank, the bulk of the loss, or 131 billion francs, was from its foreign currency positions — a broad term used to describe the more than 800 billion francs in stocks and bonds the SNB bought during a long campaign to weaken the Swiss franc. Indicatively, the amount is also almost precisely the same as the GDP of Switzerland. ...

And while the SNB lost money in pretty much everything there was one solitary asset class that generated a profit (take a wild guess which one): that's right, the SNB's gold holdings which stood at 1,040 tonnes at the end of 2021, gained 400 million francs in value during 2022.

Central banks have been buying foreign assets (mainly U.S. stocks and bonds) to drive down their exchange rates and drive up the exchange rates of their trading partners.  Buying dollars and using those dollars to buy U.S. stocks and bonds bid up the price of the dollar while bidding down the price of their own currency.

Like a thoughtless teen splurging on credit, the U.S. economy has responded to the easy money and the profligacy of its political leadership by going ever deeper in debt: currently, the U.S. net international investment position stands at -$16.7 trillion.  Paying that debt will serve as a long-term drag on the welfare of U.S. consumers.  As recently as 2007, the net investment position was less than -$1.3 trillion.  Not to worry, though: As a percentage of GDP, we're still less deeply in debt than a number of global economies, including such leading lights as Greece, Portugal, Panama, Nicaragua, Cyprus, and Cambodia.   

The mention of gold in the article reminds the reader that central banks in mercantilist countries used to accumulate foreign gold instead of foreign stocks and bonds in order to grow their own economies and shrink those of their adversaries.  They still have large holdings of gold, but they have preferred buying foreign stocks and bonds in recent years because stocks and bonds pay interest and dividends while gold does not.  But last year, the central banks of the mercantilist countries probably wished that they had stayed with gold.

The Richmans co-authored the 2014 book Balanced Trade, published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association.

Image: Swiss National Bank.

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