Skip to main content

SNB EFFECTIVE AND EFFICIENT FOREX RESERVE MANAGEMENT 2012


To: The Right Honourable Swiss National Bank President Thomas Jordan

From: Athinarayanan Sanjeevraja

Date: November 16, 2012

RE: Swiss National Bank Forex Reserves Challenges

Suggestion: SNB Effective and Efficient Management of Forex Reserves.

Good Morning Mr. President. I am writing to express that “Financial Times, London” reported that “SNB warns on challenge of forex reserves”. It is true that forex reserve management have inexorably raised significant challenges for SNB in recent years. If I am not mistaken, SNB foreign exchange reserves surged from CHF 50 billion at the end of 2008 to nearly CHF 500 billion in November 2012. It accounts nearly 70 percent of the GDP. SNB forex reserves expanded very rapidly in recent years due to SNB monetary policy. As you pointed out earlier “diversification is the only way for the SNB to mitigate the impact of foreign exchange fluctuations”. I agreed Mr. President because hedging the exchange rate risk is the main cause of the changes in SNB’s foreign exchange reserves. Hedging lead to the diluting the effectiveness of monetary policy. If we want to limit the exchange rate, credit and risk of foreign currency investments we have to diversify more. Here I would like to highlight some of main challenges of SNB’s forex reserves and how to mitigate the foreign exchange fluctuations.

(i) I observed that SNB has increased the proportion of equities to 12 percent of the portfolio in 2012. From my perspective, it is very large and it would incur greater risk. I agreed that increase in the proportion of equities incur more risk and more return but exposure to the exchange rate is the challenge of SNB’s monetary policy. We must eliminate this risk. That is SNB’s priority. I would like to recommend the level of equities to be 5 -10 percent of the portfolio. Secure is the key to mitigate the impact of foreign exchange fluctuations.

(ii)  SNB’s investment should not disrupt the market. I observed few of SNB’s investment disrupt the market because of huge volumes. SNB take care to ensure that its investment either more liquid assets or control volumes. SNB should avoid niche market and focus more on major markets like US or Europe which they can easily absorb. Europe is SNB’s major investment and followed by US. Japan, UK and Canada are niche market. I would like to recommend SNB try to reduce investment especially in Japan and Canada. Liquid assets or low volumes are the key to mitigate the impact of foreign exchange fluctuations. If SNB’s want to invest in Japan and Canada, SNB take care to ensure that its volume should be low.  

(iii)  SNB’s bond investments are in AAA or AA rated assets. SNB take care to ensure that its bond investment only in AAA rated assets to mitigate the impact of foreign exchange fluctuations.

Let me conclude Mr. President, many investment markets are niche and do not meet the SNB’s liquidity requirements. I recommend SNB’s try to avoid niche markets investments. This will lead to significant losses for the SNB. SNB always tries to pursue the most effective and efficient foreign exchange reserve management possible to mitigate the impact of foreign exchange fluctuations.

Vielen Dank, dass Sie mich heißt meiner Meinung nach Mr. President.

Grüßen,
Athinarayanan Sanjeevraja. 

Comments

Post a Comment

Popular posts from this blog

BRITAIN’S BREXIT BATTLE 2019

To:     The Right Honourable European Commission President Hon. Jean-Claude Juncker   From: Athinarayanan Sanjeevraja Date: August 19, 2019 RE:      BRITAIN’S BREXIT BATTLE   Suggestion: Hon. European Commission President, let me start by paying my respects to you and through you to. The UK Prime Minister Boris Johnson has insisted repeatedly that backstop must go, if not then no deal BREXIT but he support the GFA and custom-free border between the UK (Northern Ireland) and the EU (Republic of Ireland). That is a blatant contradiction. How can he have it both ways? If the UK wanted to exit from the EU bloc without a deal - the return of a hard border is absolutely necessary. Why BREXITERS are object to the backstop? The reason behind that it would give the EU way to keep a toehold in future UK trade policy. If the UK wanted to leave the EU without backstop, in other words, a hard BREXIT or there is been no exit agreement by both the UK and the EU – then the r
Post a Comment
Read more

HONG KONG EXTRADITION BILL 2019

To:     The Right Honourable Chief Executive of the Hong Kong Special Administrative Region of the People’s Republic of China Ms. Carrie Lam From: Athinarayanan Sanjeevraja Date: August 29, 2019 RE:      HONG KONG EXTRADITION BILL 2019 Suggestion: Hon. Chief Executive of the Hong Kong let me start by paying my respects to you and through you to. “One Country Two Systems” structure compels Hong Kong to operate currently under different legal system than that of Mainland China. You published the extradition bill on March 29, 2019 and first reading on April 3, 2019 which will destroy Hong Kong legal independence because extradition bill is another attempt for China to take away the Hong Kong independent legal system that China has agreed for Hong Kong to keep until 2047. Thus, the people of Hong Kong marched their protest against the bill on June 9, 2019. Hong Kong protests are still continuing. The silence of your government leads me to believe you have no plan t
Post a Comment
Read more

EU NEW FISCAL AUTHORITY FOR WEAK MEMBER STATES

This paper focuses on setting up new fiscal authority to manage compatible fiscal decentralisation and budgetary discipline in the EU Member States. The authority need to adopt a tough fiscal consolidation programme. The authority should be responsible for designing fiscal policy for all Member States with stricter rules, conscientious monitoring and enforcement mechanisms for the conduct of fiscal decentralisation and budgetary policy. If Member States does not implement or violate the fiscal authority law that Member State/States to be sued in the European Court of Justice. We cannot grow our economy without proper fiscal cooperation between Member States. So the fiscal authority must coach at least weak Member States how to implement effective fiscal policy so that crony driven economy can be turned into a competitive market based economy. EU established the provisions of the Stability and Growth Pact (SGP) to avoid excessive deficits of the Member States and take precise act
Post a Comment
Read more