By Agency Reporter

Monday, 17 Jan 2011

Switzerland’s Central Bank said it might have posted a record loss in 2010 as the euro’s slump eroded the value of its currency reserves.

According to Bloomberg, the shortfall amounted to an estimated 21 billion Swiss francs ($21.8bn), the Zurich-based Swiss National Bank said in a statement late on Friday.

That’s about four per cent of the size of the economy. Exchange-rate-related losses were about 26 billion and gold reserves had a valuation gain of about six billion francs, according to the statement.

The SNB, led by Philipp Hildebrand, purchased foreign currencies at an unprecedented pace in the first half of 2010 to fight franc gains, which threatened to hurt the recovery and spark deflation. While policymakers ended their intervention policy in June, Europe’s debt crisis has since eroded the euro and pushed the franc to an all-time high last month.

“It is not the SNB’s job to make profits but to ensure price stability,” an economist at Credit Suisse Group AG in Zurich, Fabian Heller, said. “It’s difficult to say what would have happened had they not intervened. Still, what we learn is how difficult it is to fight the markets.”

Hildebrand said at a press conference in Bern that while the franc was “strong against practically all currencies,” Europe’s debt crisis was posing an “enormous burden.” He didn’t say whether the SNB was ready to reintroduce intervention.

SNB policymakers will act if needed to counter deflation or inflation threats, he said, adding that the central bank has a “clear mandate.”

The franc posted its biggest weekly decline against the euro in more than seven months this week. Still, it has appreciated about four per cent in the past two months, reaching a record 1.2402 on December 30 as European leaders tried to contain the fiscal crisis and restore investor confidence in the region.

“I have the fullest confidence in my European colleagues’ ability to solve these problems,” Hildebrand said. They are “complex” because “there are a lot of sovereign states involved. It’s not surprising that this path is difficult.”

The Swiss government said in a statement that while the franc’s ascent was hurting exports and economic growth, it was up to SNB policy makers to take measures if needed. State Secretary Jean-Daniel Gerber said after a meeting with interest groups that it was “natural that grave concerns over the competitiveness of our exports have arisen.”

The SNB is a joint-stock company in which public shareholders including Swiss cantons and cantonal banks have a controlling stake. Private individuals hold the remainder.

The central bank said that the “events of the past year have highlighted the fact that an adequate capital cushion is paramount for monetary policy independence.” It also said it will continue to pursue “its long-term strategy of increasing its equity capital” and that the “possibility cannot be excluded” that its distribution of profits “will have to be suspended for a certain period, and that the amount of future profit distributions will be reduced.”

Source: Punch