By NEIL MACLUCAS at The Wall Street Journal
ZURICH—Switzerland’s central bank posted a loss in the first half of the year after its decision to scrap a long-standing cap on the strength of the Swiss franc caused the currency to soar, eroding the value of its euro reserves.
The Swiss National Bank on Friday reported a loss of 50.1 billion Swiss francs ($51.8 billion) in the six months through June 30, compared with a year-earlier profit of 16 billion francs. The loss in the second quarter amounted to 20 billion francs, following a first-quarter loss of 30 billion francs, which was the SNB’s largest since the second quarter of 2013.
The deficit was almost entirely caused by declines in the value of its huge foreign-currency positions, which are dominated by the euro, and which amounted to 47.2 billion francs. The bank also recorded a 3.2 billion franc loss on its gold holdings, which are denominated in dollars.
The SNB, like most other central banks, is mandated to secure price stability and isn’t obliged to make a book profit. But the bank’s profits are redistributed to its owners, which include Switzerland’s federal government and the country’s 26 cantons, which are akin to U.S. states. The bank, which is publicly traded, also has private shareholders.
The Swiss franc rocketed in value against the euro and other currencies in January after the SNB stunned markets by removing the cap on the franc, which had prevent the currency from climbing too high.
The central bank’s loss could jeopardize the customary payments it makes to Switzerland’s federal and regional governments. The payments are politically sensitive in Switzerland, where many of the country’s smaller cantons rely on them to help balance their budgets.
The SNB came in for criticism when it canceled the payments in 2013 for the first time in its history