A Sovereign Wealth Fund for Switzerland

Exchange rates are crucial variables for each economy as they affect the price at which a country can exchange goods and services with other currency areas. A strong domestic currency makes it relatively cheap to import goods and services, but at the same time renders domestic goods and services expensive for other currency holders. Export-oriented countries therefore tend to favour a relatively weak domestic currency. While exchange rates are usually market-determined, central banks have the possibility to weaken or strengthen them by purchasing or selling foreign currencies. Unsurprisingly, countries that export more than they import tend to witness interventions that weaken the domestic currency. Switzerland, a strongly export-oriented country, has seen such interventions since 2008 at a rapidly increasing pace. As a consequence, over the past 9 years, the Swiss National Bank (SNB) has accumulated foreign reserves surpassing the value of the annual Swiss GDP. Despite this evolution lasting over almost a decade now, the SNB’s interventions were and are still continuing to be commonly perceived as a short-term measure to offset temporary upward pressures on the Swiss Franc. We challenge this ‘short-term’ view and argue that the pressures on the Swiss Franc are long-term in nature and hence require a long-term, optimised and sustainable intervention strategy: We propose to build a Swiss sovereign wealth fund.