Why are the Swiss now issuing debt in U.S. Dollars?

What are the Swiss doing selling dollars? I don’t have an answer to this question. But, I thought I would posit it because a reader tipped me off to a development via the Blog Alea (hat tip Scott):

The Swiss National Bank (SNB) is introducing a new monetary policy instrument. It will issue its own debt certificates in US dollars (SNB USD Bills) with terms of less than one year. The instrument will be employed as of mid-February 2009 and will be used until further notice to finance the SNB’s loan to the SNB StabFund.

The first auction of SNB USD Bills is to be held on Monday, 16 February 2009, from 10.00 a.m. to 10.30 a.m., via the Eurex Zurich Ltd electronic trading platform. After that, auctions of SNB USD Bills will be held once every two weeks. All parties who are authorised by the SNB to participate in both the CHF repo market and the primary and new issues market section of Eurex Zurich Ltd are eligible to take part in the auctions.
These parties may also accept subscriptions from third parties. The auction will take the form of a variable rate tender with allotment according to the Dutch auction method. The denomination is USD 0.5 million and the SNB USD Bills are offered with terms of 28, 84 and 168 days.

SNB USD Bills will be included in the list of collateral eligible for SNB repos. Consequently, they may also be used in SNB repo transactions. Moreover, in accordance with art. 16 of the Banking Ordinance, these securities may be counted as liquid assets. The general issue conditions as well as the conditions applying to the individual issues and their results will be announced on the SNB website (www.snb.ch, Financial markets, Monetary policy operations, SNB USD Bills).

The only connection I can see to recent events is a link I posted in my links on Jan 22nd. Below is the relevant text:

Swiss National Bank Vice-President Philipp Hildebrand said policy makers are prepared to intervene in currency markets at fixed exchange rates if necessary to prevent a “renewed appreciation” of the franc.

“With short-term rates of practically zero, the SNB can’t prevent a further appreciation in the Swiss franc through a rate cut,” Hildebrand said in a speech in St. Gallen, Switzerland today. “The SNB is able to sell unlimited Swiss francs versus another currency. In an extreme case, it can commit itself at the same time to buying unlimited currencies at a fixed-exchange rate.”

The franc has risen around 7 percent against the euro since October as the global financial crisis forced the Swiss central bank to cut its benchmark rate by 225 basis points, taking it to 0.5 percent. That’s smothering inflation and hurting exports, which make up more than half of Swiss gross domestic product.

“The strong franc is certainly a burden for exports given waning global demand,” said Fabian Heller, an economist at Credit Suisse Group in Zurich. “Words are not enough to weaken the franc. But the longer the situation lasts, the higher the chance of the SNB intervening” in currency markets.

The franc dropped after the remarks, trading at 1.4846 per euro at 6:52 p.m. in Zurich, from 1.4793 yesterday. It reached a record high of 1.4315 versus the euro on Oct. 27.Against the dollar, it weakened to 1.1543, from 1.1462 yesterday.

‘Further Options’

SNB comments on the strength of the franc will probably discourage bets the currency will keep rising, Ashley Davies, a currency strategist at UBS AG, the world’s second-largest foreign-exchange trader, said in a note on Jan. 19. The franc will trade between 1.47 and 1.54 versus the euro throughout 2009, Davies said.

“A central bank is always able to increase the absolute amount of its own currency in circulation,” said Hildebrand. “Further options” for policy makers include purchasing government bonds on the secondary markets, he said, conceding that using unconventional tools “isn’t without risks.”

“The SNB will assess very carefully whether and to what extent it will use them,” said Hildebrand.

I am still left wondering why the Swiss are trying to issue debt using dollars. Ostensibly they receive dollars for these bonds, which takes currency out of circulation and makes the dollar strengthen. Can someone help me out here?

If I find anything in the Swiss press, I will post a translation.

UPDATE 2009-02-03: This is what I have heard regarding possibilities:


  1. The Federal Reserve is not going to renew their U.S. dollar swap facilities in April.  Therefore, the Swiss, the Europeans, and the British will need to find other ways to achieve this dollar exposure. This is not bullish for the Euro, Franc or Pound.
  2. The Swiss are funding the UBS assets they took on in September.  UBS transferred positions worth $16 billion to the same SNB StabFund issuing the short-term U.S. dollar notes. The SNB is acquiring tens of billions in toxic assets. Here is a story on that (here).  This seems very likely.

 You should also note that the SNB has created swap lines with the Polish and Hungarian central banks, suggesting there is a level of stress in Eastern Europe that concerns central bankers because of Western European bank exposure to falling asset prices there.

Hildebrand Says SNB Can Intervene in Franc Market – Bloomberg.com
Scoop: Swiss National Bank to Issue SNB Bills in US dollars – Alea Blog
SNB schliesst Swap-Abkommen auch mit ungarischer Zentralbank – Money Cab Finance News
SNB: StabFund übernimmt erste Tranche von UBS-Aktiven – Money Cab

  1. Mark says

    Sirs, What chance a carpenter the more I find out the less I know. I sold my house in the UK left and bought gold in an allocated account with UBS, so far so good.

    Probably all I will have are the sovereigns stash. I find it hard to believe the friends of fiat money will give up without a fight when the manure really hits. Confiscation of gold or banning the trading?

    No way shall they allow a few “speculators” to hold all the substance, draconian legislation in the interests of global emergency?

  2. Alexandra Hamilton says

    You certainly already know the answer to that question by now (2), however, here here is some more info on that:

Comments are closed.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More