In 2017, the public sector held 76.36% of the
shares of the National Bank, while private
owners represented 23.64%. The SNB has a
board of directors consisting of three people,
each of whom is responsible for a specific
division within the bank. They are responsible
for fulfilling and maintaining the central
bank's price stability mandate taking into
account economic circumstances. The limit of
the inflation price is not an absolute number
but a band with higher and lower levels. The
central bank uses policy tools such as interest
rate hikes and cuts to achieve the price
growth target, whether with hawkish
(aggressive hard-hitting) policies or
accommodating by SNB officials.
SO NOT TO FORGET, when the Eurozone debt
crisis began in 2011, with the first turmoil in
Greece also in 2011, institutional financial
operators started buying the Swiss franc as an
alternative to the euro.
However, as Switzerland is an export-driven
economy, the stronger franc has been an
obstacle for economic growth. It also
undermined the effort to ban deflation-era
deflation.
To counter this, the SNB decided in 2011 to
put a minimum EUR / CHF ratio of 1.20. So if
the EUR / CHF approached to fall below this
exchange rate, the bank would have
weakened the Swiss unit by selling it on the
open market.
This clearing process lasted until early 2015.
Suddenly on January 15, 2015, despite
statements by SNB officials, confirming their
commitment to the EUR / CHF balance plan
at 1.20, communicated a few days earlier, the
central bank has abandoned monetary policy
without warning.
The consequence in that January 15, 2015 was
the Swiss franc appreciated with an
astronomical + 30% on the euro, causing
chaos in all currency relationships.
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.
This allows investors using the cheap
borrowed franc to buy higher yielding assets;
allowing them to earn the interest rate
differential as income.
When financial markets are relatively bullish,
investors invest in yields compared to security
or protection, the increase in demand for
higher yielding financial instruments tends to
produce a free increase in their prices.
Such market conditions are typically
characterized by an increase in equity
markets.
However, an adverse turnaround in market
sentiment that shifts investor interest to
capital preservation may put this dynamic
backwards. Investors who have purchased
riskier assets with borrowed francs exit these
positions and buy back the Swiss unit to
hedge the loans, bringing the currency
higher.
What it often produces in practice is an
inverse relationship between the Swiss franc
and "risky" assets, ie those with relatively
higher rates of return than safer alternatives
(a common example of the trade-off between
"risky" assets and "safe" assets is between
stocks and bonds, respectively).