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2024-08-25

Swiss Central Bank Loses $970B; Germany Faces Bankruptcy Fears

01, Switzerland Suffers Huge Losses

In this week's capital market, the Swiss National Bank (SNB) revealed a shocking piece of news. Known as the most skilled central bank in stock trading, it may incur a loss of 132 billion Swiss francs in 2022, which, when converted at the current exchange rate, is equivalent to a loss of 970 billion yuan in Chinese currency.

Curious individuals immediately looked into historical records and found that this is the largest annual loss recorded by the Swiss National Bank since 1906.

Amidst the significant interest rate hikes by the Federal Reserve that have stirred up global financial markets, no central bank or institution can remain unaffected.

This data was announced in a preliminary assessment report released by the Swiss National Bank. In the previous year, the Swiss National Bank had made a profit of 25.7 billion Swiss francs, but now the loss has soared to 132 billion Swiss francs, with the 2022 loss being five times the profit of 2021.

The Swiss National Bank stated that most of the losses are related to the devaluation caused by exchange rate fluctuations in the foreign currency assets it holds. Preliminary calculations show that exchange rate losses have resulted in a devaluation of 131 billion Swiss francs.

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Undoubtedly, the exchange rate losses are attributed to the repeated significant interest rate hikes by the Federal Reserve.

02, Germany Faces Bankruptcy Threat

Germany is not the only European country suffering significant losses due to the Federal Reserve's actions; even the largest economy in Europe, Germany, faces the danger of bankruptcy.

Not long ago, German Deputy Speaker Kurtz warned that the energy crisis is far from over. Germany has paid an additional 110 billion euros to cope with the energy crisis, which could very well lead to Germany's bankruptcy.In his view, these funds cannot be resolved either through tax increases or by printing more money, resulting in a significant deficit for the government.

The United States' monetary tightening not only faces Europe with an energy crisis but also prompts many European companies to consider relocating out of Europe. Should these companies be successfully lured into the United States, it would undoubtedly be a very successful reaping for the U.S.

03, Stock and Exchange Losses

Furthermore, the Federal Reserve has agitated global financial markets, causing more apparent losses, which are undoubtedly the stock markets of various countries.

The Swiss National Bank should be one of the most enthusiastic central banks involved in stock market investments; it once held stocks in nearly 2,500 U.S.-listed companies, with a market value of up to $140 billion, accounting for one-fifth of the country's foreign exchange reserves.

Having once reaped substantial gains due to the rise in the stock market, the Swiss National Bank is now facing substantial losses due to the U.S. interest rate hikes that have led to a global stock market decline.

On the other hand, losses are surprisingly coming from the continuous strengthening of the Swiss franc exchange rate.

Throughout the year 2022, the U.S. dollar appreciated significantly against most currencies, meaning that many non-U.S. currencies depreciated significantly, with many depreciating by more than 10%. However, the U.S. dollar only appreciated by 1.43% against the Swiss franc for the entire year, which also resulted in the Swiss franc appreciating significantly against most other non-U.S. currencies.

In June of last year, the Swiss franc's exchange rate against the euro even broke the 1:1 mark, reaching its highest level since 2015. Since Switzerland is export-oriented, currency appreciation is very detrimental to exports, so the Swiss National Bank has been selling francs and buying foreign assets, hoping to suppress appreciation. It is precisely for this reason that the Swiss National Bank holds a large amount of foreign currency assets.

However, these foreign currency assets are depreciating against the franc, resulting in significant exchange rate losses after conversion.04, The United States May End Up Losing More Than It Gains

In conclusion, let's turn our attention back to the United States. After successfully inciting a storm of conflict, we are surprised to find that the U.S. may very well end up losing more than it gains.

Although the U.S. Dollar Index continues to rise and the value of the dollar keeps appreciating, leading to a certain amount of capital inflow into the United States, the price the U.S. pays is a significant decline in both the stock and bond markets, and there is even a possibility that the U.S. housing market could collapse in 2023.

The inflow of capital cannot find suitable U.S. dollar assets to invest in and will eventually flow out. It is clear that the United States is not gaining as much as it is losing.

On the other hand, the U.S. hopes to attract European companies to relocate to the United States. However, due to the increasing interest rates in the U.S., the financing costs for businesses are also rising, causing European companies to hesitate.

At the same time, the continuous appreciation of the dollar also makes it difficult for companies to maintain competitiveness in global exports after completing production within the United States.

This could inadvertently benefit China, as since the second half of last year, investments from Germany into China have almost doubled, and many European companies are expanding their investments in Mainland China.

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