By James Saft
Aug 2(Reuters) – Switzerland is rapidly turning into a large
hedge fund with a small country attached.
Switzerland on Tuesday revealed its foreign exchange
reserves now total 365 billion francs ($374 billion), a rise of
50 percent in just three months and taking it to a dizzying 62
percent of Swiss annual output. A small Alpine country with a
big banking industry is now the world’s sixth-largest reserves
holder, behind only much larger or resource-rich countries like
China, Japan, Russia and Saudi Arabia.
The reason: the Swiss National Bank’s strategy of imposing a
cap on the value of the franc against the euro, a
policy which obliges it to buy euros in unlimited amounts when
the exchange rate hits its line in the sand of 1.20 francs to
That’s right: if anyone, anywhere, wants to exit their
position in the troubled euro, no matter how large, the SNB will
buy at a guaranteed price and hand over in exchange francs.
Little wonder Switzerland is experiencing a property price
boom. That’s essentially a global macro hedge fund strategy,
though no hedge fund manage would be foolish enough to publish
and commit to it.