The Massive Losses From Swiss Currency Intervention

In June last year, I wrote about how the Swiss National Bank had invested invested tens of billions of Swiss francs to halt the appreciation of that currency. The total amount invested according to the Swiss National Bank itself was about CHF 200 billion.

Yet since June 2010, the CHF has nevertheless appreciated by 40% against the USD, from 85 U.S. cents, to $1.20, while it has appreciated by 25% against the euro, from about 70 euro cents to 87 euro cents. In inverted terms, this means that the dollar has lost 30% against the CHF and the euro 20%.

A rough estimate given the holdings of CHF 240 billion in June 2010 implies that the Swiss National Bank has lost CHF 50 to 70 billion, capital losses equivalent to more than 10% of Switzerland's GDP. And despite these massive losses, it has been powerless to stop the massive appreciation that creates big disruptions for Swiss companies.

This illustrates the irrati of exchange rate intervention through asset purchases. If one is to intervene, taxes on foreign capital inflows like Brazil has imposed, is smarter since it creates revenues and not losses.