Swiss National Bank
From The Free Forex Encyclopedia
The Swiss National Bank conducts the country’s monetary policy as an independent central bank. In so doing, it creates an appropriate environment for economic growth. The National Bank is obliged by the Constitution and statute to act in accordance with the general interests of the country. Its policy goal is price stability, while taking into account the economic situation.
The Swiss National Bank is the central bank in the Swiss banking system. In addition to regulating the Swiss money supply and influencing the national interest rate–functions performed by any of the world’s major central banks–the Swiss National Bank plays a larger role than most national banks in attempting to influence the exchange rates between different national currencies, and is thus a key player in the foreign exchange market.
Fixed exchange rates between national currencies were standard until the United States’ move away from the gold standard in 1971, which led to the present system of variable exchange rates beginning around 1973. In response to this, the Swiss National Bank–which remained mostly gold-backed for much of its history, until a recent large-scale gold sell-off near the start of the millennium–began attempting to maintain the stability of the Swiss franc by directly buying and selling foreign currencies through “swap” transactions, in which foreign currency is purchased at the beginning of a “swap” period and sold back at the conclusion of a “swap” period for a comparable exchange rate.
Because the Swiss National Bank takes such an active role in influencing foreign currency exchange rates, the actions of the Bank should be carefully watched by any currency traders and appropriate measures taken in response. Additionally, the Bank’s willingness to deal with many forms of currency makes it an ideally stable point on which to base new investments in a variety of currency asset markets.