Switzerland's negative interest rates and the implications for the financial market have put the central bank in the focus of politics. A powerful lobby group now wants to force the central bank to hand over money it collects from commercial banks for holding their cash.
The bid comes at a crucial moment for the Swiss National Bank, or SNB. While the Federal Reserve recently cut its rates for the first time in years and the European Central Bank is expected to follow suit in September, the Swiss counterparts are also concerned about a steadily rising Swiss franc.
Economists in Switzerland agree: slowing growth, an appreciation of the franc and rate cuts in major trading blocs leave the SNB with little choice but using one or both of its major instruments: a further rate cut to minus 1 percent and/or further currency market interventions.
The target rate, which has been negative for almost five years now, has had two major implications for the financial markets deemed critical: on the one hand, commercial banks are forced to pay interest on their cash holding at the central bank and on the other, investors – including crucially pension funds and the state-pension organization AHV – are struggling to make a profit.
State Pension Faces the Crunch
The SNB had a profit of 1.1 billion Swiss francs ($1.12 billion) on Swiss franc positions. The profit resulted largely from negative interest charged on sight deposits of banks. In all, the SNB makes about 2 billion francs in profit from charging banks interest.
The state pension meanwhile is struggling to keep its books in balance as the population is aging. It urgently needs more funds to meet the obligations. A group of right-wing politicians has now launched a new bid to help the state pension system back on a more steady footing.
New Political Initiative
The Association of Swiss Taxpayers plans to launch a popular initiative aimed at forcing the SNB to hand over the interest it gets from commercial banks for their cash holdings to the state pension fund, «Sonntagszeitung» reported (behind paywall). Alfred Heer, the group's president and a lawmaker for the Swiss People's Party, wants to forge an alliance with left-wing groups to improve the chances of his move.
An alliance between right and left would be in a very strong position and the SNB is well advised to carefully devise a strategy against the move if it is called to do so. The proposal has similarities with earlier attempts to get the SNB shift profits from the gigantic balance into a state fund – which in turn would help finance the pension system.
Allergic Against Infringement
The proposal to help the AHV system to additional funds may prove popular with voters, because the additional money comes for «free» – no additional taxes or deductions from their wages would become necessary. Of course, the move would cease to provide additional money as soon as rates are back in positive territory.
The central bank usually isn't drawn into party politics but occasionally explains its position if its directorate feels that politics is unduely impinging on its independence. The bank repeatedly stated that it mandated only to use its instruments for monetary policy purposes.
The bank gives a maximum of 2 billion francs each year to the federal and cantonal governments out of its strategic reserves, depending on the current financial status of the reserve fund.
