Swiss National Bank or SNB is the central bank of Switzerland which performs the role of Swiss franc, which is the lawful money of Confederation. Central banks are involved in the money and financial process of the respective country and in the case of the Swiss Confederation it is the SNB’s obligation. Not only does it regulate the national currency which is the Swiss franc, CHF, but also makes decisions that affect the economy. The SNB is quite important bearing in mind that Switzerland is a world’s financial center and thus the actions of the central bank can affect other economies.

History of the Swiss National Bank

The Swiss National Bank has its origin in the year 1907. Around that time Switzerland had many Private banks that were issuing their currency, which made the Swiss economy rather confusing. To rectify this, the Swiss government came up with the SNB which is the only legal tender authority in Switzerland with the mandate to issue Swiss francs. In the past, it has again been able to perform the role of safeguarding Switzerland’s economic stability as and when the nation has faced various crises, including wars and global recessions.

Functions of the Swiss National Bank

The SNB has several important responsibilities that help keep Switzerland’s economy strong.

• Monetary Policy: Stabilization of prices in Switzerland is one of the SNB’s most important tasks to perform. It does this through regulating inflation, which is when the price of goods and services increase, and deflation whereby the prices of these goods and services decrease. To control inflation, Swiss National Bank changes the interest rates – an increase in interest rates makes borrowing of cash costly hence decreasing inflation, while a decrease in rates encourages spending.
• Foreign Exchange: The SNB also controls the country’s foreign currency reserves Thus, the SNB has the responsibility of operating the Swiss foreign currency reserves. These reserves are useful because they allow Switzerland to cope with economic jolts and determine the rate of the Swiss franc against other foreign currencies.
• Financial Stability: This is the reason that the SNB has to ensure that the country’s financial system particularly the Swiss banks remains sound. This involves supervising banks and then intervening only on rare occasions to prevent the development of financial crises.
• Issuing Currency: The SNB is the only institution in Switzerland, which has the authority to emit the Swiss francs. It also creates and organizes the process of Swiss banknote printing to ensure that they are hard to fake.

How SNB Impacts Forex Markets

The SNB has a very active role in the forex market since its actions will always have an impact on the Swiss franc currency.

• Monetary Policy Decisions: Hence, when the SNB changes the interest rate, the people’s perception as well as the businesses may change the attractiveness of the Swiss franc. For instance, if the SNB increases the interest rates, investors may find Switzerland more appropriate to invest in, thereby increasing demand for Swiss francs. This increase in demand also can lead to the appreciation of the franc in the forex market.
• Foreign Exchange Reserves: The SNB sometimes uses direct control of foreign exchange through the purchase and selling of foreign currencies to regulate the value of the Swiss franc. This way, Swiss National Bank can either devalue or revalue the franc in a bid to protect its economy from the differently valued global currencies.
• Safe Haven Currency: The Swiss franc has been regarded as part of the infamous “Safe-Haven currencies”. This means that during global economic turmoil, people purchase Swiss francs due to the thinking that investing in Switzerland is safe.

Independence and Transparency

This is so because SNB is very much respected largely because it is an autonomous institution not affiliated to the Swiss government. This means it can make decisions purely with considerations as to what is economically best for it. On the same note, the Swiss National Bank is also eager to be transparent to the public. It has press releases and other working papers which contain findings of the policy. As a result, it holds press conferences to make the public understand its decisions.

Challenges Faced by Swiss National Bank 

As with all central banks, the Swiss National Bank has had some issues. Inflation is always an issue as this always affects the economy. On the other hand, falling prices are also disadvantageous since they may reduce people’s expenditure and investors’ willingness to invest. Like many other central banks, the SNB needs to manage exogenous shocks such as shifts in the international economy that impact the Swiss franc and the Swiss financial system.