Recently Switzerland’s Central Bank Swiss National Bank garnered headline glory by reporting a record $55 billion (54 billion francs) profit last year, which exceeds even the annual profit of Apple and the combined profit of JP Morgan and Berkshire Hathaway. The central bank’s strong result was aided by record profit on its equity holdings, bond prices, and its weaker currency.
SNB earned 8% of GDP last year
SNB’s stupendous results made one wonder how the central bank emerged as a major money manager with a nearly $800 billion portfolio of bonds and stocks. Of note, unlike other central banks such as ECB, BOJ and FED, SNB’s balance sheet largely comprised of foreign assets, with 49 billion francs of its profits generated from its foreign assets, while the central bank could net only about three billion francs from its gold holdings and another two billion francs from its Swiss franc positions. It is widely believed that SNB has been preventing Swiss franc from drastic appreciation by printing more francs and infusing them into global markets to buy bonds and stocks. The hefty profit of 54 billion francs clocked last year translates into 8% of Switzerland’s GDP. Thus one can surmise that the central bank made substantial PROFIT OUT OF THIN AIR.
While SNB’s gold holdings resulted in only about three billion francs of profit last year, various central banks turned out to be aggressive buyers of gold in 2017, having purchased 414.9 tons, as against 95.1 tons bought in 2016. Investors were in full focus when data from World Gold Council revealed that the central banks purchased 117.7 tons during October and November 2017 alone. It is well known that central banks prefer gold as protection against black swan economic events.