A Sovereign Wealth Fund for Switzerland

6 Pages Posted: 6 Sep 2017

See all articles by Richard Senner

Richard Senner

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss National Bank - Financial Stability

Didier Sornette

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC); Swiss Finance Institute; Southern University of Science and Technology; Tokyo Institute of Technology

Date Written: June 22, 2017

Abstract

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.

Keywords: surplus countries, central bank interventions, sovereign wealth funds, mercantilist critique, Swiss franc, current account imbalance

JEL Classification: E5; F31; F32; O24

Suggested Citation

Senner, Richard and Sornette, Didier, A Sovereign Wealth Fund for Switzerland (June 22, 2017). Swiss Finance Institute Research Paper No. 17-24, Available at SSRN: https://ssrn.com/abstract=2991115 or http://dx.doi.org/10.2139/ssrn.2991115

Richard Senner (Contact Author)

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

ETH-Zentrum
Zurich, CH-8092
Switzerland

Swiss National Bank - Financial Stability ( email )

Boersenstrasse 15
Zurich, CH-8022
Switzerland

Didier Sornette

ETH Zürich - Department of Management, Technology, and Economics (D-MTEC) ( email )

Scheuchzerstrasse 7
Zurich, ZURICH CH-8092
Switzerland
41446328917 (Phone)
41446321914 (Fax)

HOME PAGE: http://www.er.ethz.ch/

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Southern University of Science and Technology

1088 Xueyuan Avenue
Shenzhen, Guangdong 518055
China

Tokyo Institute of Technology

2-12-1 O-okayama, Meguro-ku
Tokyo 152-8550, 52-8552
Japan

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