In 2024, the Swiss National Bank is set to distribute 3 billion francs to the federal government and cantons following an impressive annual profit of about 80 billion francs. While this financial boost is welcomed, the weaker Swiss franc raises concerns about purchasing power for consumers. The current negative interest rate and inflation add to the complexity of the situation, suggesting that the unexpected profits should be used for tax reductions to benefit the broader population.
Financial Windfall from the Swiss National Bank
After enduring lean times, the Swiss National Bank (SNB) is poised to deliver a financial boon to the federal government and cantons in 2024. Following a two-year hiatus, the SNB is set to distribute a staggering 3 billion francs, with two-thirds allocated to the cantons and one-third to the federal government. This windfall comes on the heels of an extraordinary annual profit of approximately 80 billion francs generated by the SNB.
The Implications of a Weaker Franc
While financial policymakers may rejoice at this influx of cash, the implications for the average consumer are more complex. The record profits of the SNB have been achieved amidst a relatively weak Swiss franc, which can raise concerns about its impact on purchasing power. Last year, the franc depreciated against both the euro and the dollar, which, while beneficial for the SNB’s profit margin, translates to diminished purchasing power for Swiss citizens, particularly in foreign markets where prices have surged.
This situation is exacerbated by the expansive monetary policy adopted by the SNB, which has led to a slight negative interest rate when comparing the current key interest rate of 0.5 percent against an inflation rate of 0.6 percent. Consequently, the government and cantons should exercise caution and not become complacent with these unexpected profits, as they are inherently tied to fluctuating financial markets.
Looking ahead, the extraordinary profits witnessed last year are unlikely to be replicated anytime soon, given the unusual investment climate of 2024. With a rare alignment of strong dollar performance and gold price increases, the potential for significant corrections looms large. Therefore, if these funds are distributed, they should ideally be utilized for tax reductions, ensuring that the benefits reach the wider population that indirectly supports these profits through a weaker currency.