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SWISS NATIONAL BANK

Switzerland to escape recession: SNB chief

Switzerland will avoid falling into recession despite the crisis in the euro zone, the head of the country’s central bank says.

Switzerland to escape recession: SNB chief
Swiss National Bank Chairman Thomas Jordan (Photo: SNB)

But economic growth will be weak in the coming quarters, warned Thomas Jordan, chairman of the Swiss National Bank (SNB) in an interview with Tages Anzeiger that appeared on Thursday.

“Although the economic development of the euro zone is very important for Switzerland and the regional recession is having a dampening effect on us, we currently do not expect that Switzerland will slip into recession,” Jordan said.
 
“But we will have in the coming quarters very low growth rates,” he cautioned.

“For the full year 2012, we still expect one percent growth.”

Jordan said he anticipated weak but still positive growth for the third and fourth quarters.

In addition to problems with Europe’s peripheral countries, such as Greece, where growth has stalled, Switzerland is also impacted by “unresolved budgetary conditions in the USA”, he said.

The central bank chairman said the SNB was prepared to take additional measures if necessary to support the economy.

But he avoided giving a direct answer to a question about whether the central bank was prepared to defend a higher exchange rate for the euro against the Swiss franc of 1.30.

In September 2011, the bank began defending a minimum level of 1.20 euros to the franc after the safe-haven currency briefly flirted with parity with the euro.

The exchange rate has remained rock-steady since then, with the SNB buying euros on FX markets to prevent the franc’s appreciation.

The policy was introduced “to avoid extremely negative development for our country,” Jordan said.

By effectively drawing a line in the sand, the SNB “has reduced the strong deflationary risks and prevented an impending crash in the Swiss economy,” he said.

Among other issues, Jordan said he remained concerned about the “strong momentum in mortgage lending” and the continuing rise in housing prices, particularly for condominiums.

Rising prices in themselves are not a problem, he said.

But “if the price trend in the property market is not to be explained by fundamental factors, then we are moving in the direction of a price bubble that will burst sooner or later”.

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SWISS NATIONAL BANK

Why is the demand for 1,000-franc banknotes growing in Switzerland?

Large-denomination banknotes, like the 1,000-franc note, are rarely used for everyday transactions in Switzerland. So why are they becoming more popular?

Why is the demand for 1,000-franc banknotes growing in Switzerland?
The kind of banknotes the Swiss like to stash away. Photo by AFP

The demand for 1,000-franc notes has risen in the past months, data from the Swiss National Bank (SNB) indicates.

CHF1,000 converts to approximately €925.75, £824,63 or $US1126.98. 

Whether withdrawing the money from an ATM machine or directly from a bank, customers request large-bill denominations more often than before.

“We do know there is more cash being currently withdrawn in large notes, but it changes hands less often” Sarah Lein, a monetary policy expert from the University of Basel told SRF public broadcaster.

This means the money is not being spent but stashed away.

“We can conclude that some large notes end up in a safe”, she added.

READ MORE: Switzerland’s economy forecast to recover 'from summer onwards' 

The reason, she said, is that many banks charge their customers negative interests on large deposits.

“Therefore, it could be cheaper to simply withdraw the cash in large notes and keep it in a safe, especially since inflation has been extremely low for a long time”, Lein added.

This is not unusual — in times of crisis, more cash is often in demand.

But could this cause the shortage of 1,000-franc bills?

That is not likely to happen, Lein pointed out.

“Both the central and commercial banks have enough cash stored in their vaults to meet such demand. So there is always enough money available”, she said.

There is about 48.6 billion francs floating around in the form of 1,000-franc notes, constituting 59 percent of all Swiss notes in circulation. 

It is the world’s second-largest denomination after Brunei's B$10,000 note.

READ MORE: What do people in Switzerland spend their money on?

 

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