CORRELATION, TRADE-OFF AND
CARRYTRADE OF THE SWISS FRANC
By Marco Vitro
Since 1803, Switzerland had a decentralized
minting system. Banks issued banknotes as
foreign currencies poured into the country. In
1820 there were at least 8,000 different coins
in circulation.
In 1825, several cantons - the regional
administrative divisions of a state - issued a
standard
currency
called
"Konkordanzbatzen".
After the Swiss federal constitution of 1848,
only the government was able to issue
money. In 1850 the Federal Coinage Act was
approved, introducing the franc as the official
currency of Switzerland.
The Swiss National Bank (SNB) was born out
of the desire to reduce the number of
banknote issuing banks in the nineteenth
century.
A motion to establish a central bank in 1885
failed, but a second attempt in 1903 was
eventually successful.
The SNB was created in 1907 and granted a
monopoly on the issue of banknotes in 1910.
In 1930 it joined the Bank of International
Settlements (BRI). By gradually lowering
interest rates after the Great Recession to
negative levels, the Swiss National Bank has
encouraged the use of a speculative strategy
called the carry trade. The National Bank is
different from most other central banks in
that it is a "special joint-stock company". Its
share capital is CHF 250,000. This is divided
into 100,000 registered shares, so that each
has a par value of CHF 250. The SNB's shares
are listed on the Swiss stock exchange.
Shareholders may receive dividends, but
these are limited to 6%.