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How Modern Monetary Policy Changed CHF from Gold-Backed to a USD and Euro-Backed Currency

How the Swiss franc changed from a gold-backed currency to a euro and dollar-backed currency. Most of the holdings are German Bunds and US treasuries.

Gold-backed CHF vs. EUR USD backed

Graph thanks to @CoimbraAzevedo, now at BNP Paribas, who comments

“What do You think when You see this chart? Hint: it’s a spherical viscoelastic film filled with gas.”

Effectively the gold share in Swiss currency reserves has fallen, from 30% in the year 2000 to 10% recently. In the case a yes to the upcoming gold referendum it must rise to 20% again.

Ratio Gold to Balance Sheet  SNB

 

 

Especially when we slowly move into an inflationary environment and prices of German Bunds and US Treasuries are falling, it may get dangerous for the SNB.

On the other side, ECB and Fed interest rates seem to be nailed to zero for years: There is no real carry trade that could help the SNB to sell reserves.

 

Read also:


 

George Dorgan
George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.
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