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The Swiss National Bank and Seignorage
Revue Economique et Sociale
The purpose of this paper is to study the SNB's performance in managing Switzerland's seignorage wealth. The main conclusion is that the SNB has held an asset portfolio that was excessively liquid, not sufficiently hedged and not sufficiently diversified. This risky portfolio strategy was in large part dictated by the excessive legal restrictions placed on the SNB's asset management. It has cost the Swiss tax-payer in excess of 6'000 mio. Fr. in the period 1984-94. There is an urgent need to adjust the legal constraints and the institutional rules governing the management of this huge stock of assets, while at the same time maintaining or reinforcing the SNB's independence in formulating its monetary policy. The main propositions put forward in this paper are to: a) modify the law requiring the SNB to hold only short term foreign currency assets; b) abolish the anachronistic gold coverage requirement; c) take a substantial fraction of Switzerland's financial wealth out of the control the SNB and place it in a « seignorage fund ». This « seignorage fund » would manage its assets according to the standard criteria of portfolio management; d) impose legal or constitutional restraints on this seignorage fund to prevent the government from running down its assets. The net result of these changes would be a substantial gain to the Swiss government and tax payer.
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