The Swiss National Bank (SNB) has announced that it will suffer a record loss of 132 billion Swiss francs (CHF) in 2022, equivalent to $143 billion. This represents the biggest loss in the 115-year history of the bank. The loss is a result of the SNB’s efforts to fight inflation by raising interest rates, along with a weakening of global stock markets and falling bond prices, which have affected the value of the SNB’s portfolio of stocks and bonds. The strong Swiss franc has also contributed to the loss.
The SNB’s loss is a sign of the increasing difficulty for central banks around the world to avoid the effects of the Federal Reserve’s quantitative easing program. In 2022, there will be inflation like never before in several developed countries as a result of the Fed’s interest rate increases in 2021. Switzerland, as one of the largest offshore financial centers in the world, will also be hard-hit by the Fed’s quantitative easing.
In addition to the effects of quantitative easing, Switzerland is also facing challenges as a result of the “de-dollarization” trend, which is seeing countries move away from the use of the US dollar in international trade and finance. According to the latest International Capital Flows Report from the Treasury, Switzerland had already sold a net of $36.4 billion in US treasuries by the end of the third quarter of 2022, a drop of 12.0% from the previous year.
Switzerland’s refusal to use the dollar has also resulted in limitations on trading goods with other countries. For example, Iran’s trade and economic leaders have announced plans to use cryptocurrency trading to bypass the limitations of the dollar. Switzerland, which has already been using non-dollar currency trading systems with developed European countries such as Germany and the UK, is expected to expand these systems even further in 2023.
This trend is also being felt in the global oil trade, with Switzerland’s Vital Oil Group, the largest oil trader in the world, regularly buying energy products from Iran and potentially selling them to other countries in currencies other than the dollar. This is a significant challenge to the petrodollar, which has dominated the global oil trade for over 50 years.
The trend towards de-dollarization is also reflected in the actions of other developed countries. The Bank for International Settlements, which tracks a group of Swiss banks, the Bank of Japan, the Bank of England, the Bank of Canada, and the European Central Bank, has reported that this group is in a deep development phase, indicating that at least 23 developed countries are moving away from the dollar by using cryptocurrencies.
According to the International Monetary Fund (IMF), seven countries are in debt and are increasing their share of yen reserves in their foreign exchange reserves, including Switzerland, which has the third largest share of yen after Russia and Brazil. Other countries, such as Israel, have also sold dollars for other currencies, such as the Chinese renminbi.
The de-dollarization trend is having a significant impact on Switzerland’s economy, which is heavily dependent on its financial services sector. The sector makes up more than 10% of GDP and the country’s banking sector has assets worth more than $6.5 trillion, or 25% of the world’s cross-border assets. If Switzerland continues to move away from the dollar, other countries may follow suit.
Furthermore, the demand for gold has also been on the rise as countries look to replace the US dollar as their main reserve currency. Switzerland, being one of the world’s gold centers, has seen a significant increase in the amount of gold bought by Chinese buyers.
In light of these developments, it is crucial for countries to closely monitor the global economic situation and make necessary adjustments to mitigate any negative effects. It remains to be seen how these trends will continue to play out in the coming years, but one thing is certain: the world is moving towards a new era of currency and wealth distribution.
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