The World's Most UNUSUAL Central Bank (that's even LISTED on the STOCK EXCHANGE)

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where we can even find initiatives such as the brunig megasafe a project that involves drilling into the alps to build huge secure vaults where all kinds of valuable objects can be stored [Applause] but hold on in this video we are not going to focus so much on the swiss economy but rather on a very odd institution that in recent years has become an important player in the global financial market i am referring to the swiss national bank yes that's right the central bank of switzerland a central bank so unusual that it's even listed on the stock exchange yes yes that's correct it is quoted as one more stock on the swiss stock exchange in other words you could personally invest in the swiss national bank and become a shareholder of the central bank of switzerland curious don't you think [Music] but that is by no means its only peculiarity did you know that the swiss central bank has invested more than 170 billion dollars in shares of companies such as apple amazon facebook or alphabet among many others did you know that there are even academics analysts and professionals who consider that the swiss central bank has become one of the largest hedge funds in the world in this new video that we have made in collaboration with value school we are going to give you all the details so let's get going a different kind of bank [Music] dear friends of visualpolitik please pay attention to the following headlines march 2nd 2020 swiss national bank posts 50 billion profit on boost from apple and amazon and company windfall makes swiss central bank one of the world's most successful investors in 2019 may 11th 2020 switzerland central bank bought up apple ge and disney stock it also loaded up on a marijuana stock yes i know it seems like news from a mutual fund or a hedge fund but we're talking about the swiss central bank an institution which like the european central bank in the euro zone or the fed in the united states has the main role of setting the monetary policy issuing the national currency in this case the swiss franc and managing the country's gold reserves that is the usual task of central banks however as you can probably imagine the swiss national bank has certain characteristics that make it quite different from other central banks first of all it is a bank that does not belong to the state and whose share price is quoted on the stock exchange and that how can i put it it's far from usual [Music] a closer look shows us that the capital of this bank is made up of a hundred thousand shares 45 are held by the different cantons that make up the swiss confederation just a side note the cantons are kind of autonomous regions with a lot of self-government they set their own taxes their rules their regulations in practice they are almost small states that together form a kind of union the swiss confederation but let's continue so the various cantons share 45 percent of the central bank's shares a further 15 is held by smaller local banks that also belong to the cantons leaving the remaining 40 to float on the stock exchange in fact the bank has been listed on the swiss stock exchange since 1907. so yes without any problem you could become a shareholder of the swiss central bank you can buy its shares just like you would buy those of any other company however these stocks are a bit unusual let's just say that the rights of shareholders are somewhat limited you see ordinary shares of the swiss national bank do not have voting rights in the event of the bank's liquidation the shareholders would only receive at most the nominal amount at which the shares were issued 250 swiss francs per share and what's more by law the shares can only pay a maximum dividend of six percent on the share capital which is 25 million swiss francs in other words shareholders can at best only receive 15 francs per share in dividends per year and so if we consider that the shares are currently quoted at 5 300 swiss francs each that means that the dividend yield that shareholders receive which by the way is practically the only return they can get from this bank because the accumulation of profits does not belong to them is 0.28 per year [Music] yes yes 0.28 per year it certainly doesn't seem like the best investment in the world these shares behave more like a kind of very secure perpetual bond that is why the market value of this bank is only about 600 million dollars but hold on a second didn't we tell you at the beginning that this bank made a profit of 50 billion dollars in 2019 so where does all this money go according to the national bank act which is the law that regulates the operation of this body these profits are accumulated in the bank's reserves which are gradually released both to the cantons and the federal budget itself [Music] in 2020 for example the cantons will receive 2 billion swiss francs from the central bank and the federal council that is the federal government will receive a further 1 billion all in all some 3.3 billion dollars and in other words in the case of the swiss national bank business is not done by the shareholders but then what's the point why dedicate a whole video to the workings of this bank well my friends because the swiss national bank has another very special feature that has a lot to do with the strength of the swiss franc and the country's economy so what is it let's take a look everyone wants swiss francs the swiss franc is a very special currency although it is a fiduciary currency virtually everyone trusts it this explains why this currency plays a very significant role in world finance let's just say that every time there is an economic crisis or an international financial crisis the swiss franc becomes one of the most sought after havens [Music] when there are problems or trouble brewing everyone wants to have their money in swiss francs in a way at the currency level it plays the same role as gold for example after the financial crisis of 2008 demand for swiss francs sword this has also been the case with the coronavirus crisis and the question is why does the swiss franc play this role as an active refuge why do investors feel more secure putting their fortunes into swiss francs in times of fear or stress well let's say that there are two explanations for this on the one hand the strength of the swiss economy which we'll talk about later and on the other hand the historical performance of this currency [Music] over the last five decades the swiss franc has almost doubled in value against the dollar and even more against other major currencies such as the euro pound and yen for example in august 2000 the market was giving 1.83 swiss francs for every us dollar at the time of making this video you would only get 0.9 francs for every dollar that's less than half [Music] of course there is one problem with so much demand for the swiss franc if the currency appreciation is very rapid or abrupt the export industry may have problems and friends believe it or not switzerland is one of the countries with the most exports on the whole planet each year switzerland exports goods and services worth more than 400 billion dollars a figure that accounts for more than 65 percent of its gdp which makes switzerland a much bigger exporter than for example germany so what is the swiss national bank doing to avoid very sharp revaluations of the swiss franc well to start with it tries to curb demand by setting the lowest interest rate in the world the official interest rate in switzerland is negative 0.75 and since that is not enough and people still want to buy more and more franks then its second measure is to expand the supply that is to issue many many new francs pay attention to this fact let's break it down since 2002 the balance sheet of the swiss central bank has increased almost eight-fold in other words the central bank has increased the number of swiss francs by hundreds and hundreds of billions of dollars by the equivalent of just over 850 billion dollars and in fact this explains why today its balance sheet is equivalent to 135 of the country's gdp this makes it in relative terms the central bank with the largest balance sheet in the world [Music] and here friends is where we come to the key issue as we have seen the swiss national bank is issuing new francs to meet the huge demand that is it creates huge amounts of new francs to be sold to investors in exchange for dollars euros pounds yen etc etc and the question the big question is what on earth is the swiss bank doing with that amount of currency listen up a national treasure friends thanks to the enormous demand for swiss francs the swiss central bank has accumulated the equivalent of 950 billion dollars in foreign currency as of june 2020 and what do you think it has done with such an amount of money well it hasn't left it sitting idly it has started to invest all over the world particularly in the united states approximately 90 of all foreign currency reserves have been invested as follows most of it some 665 billion in debt from countries and large companies and the rest some 170 billion dollars has been invested directly in shares in other words the swiss national bank has shares in the world's leading companies amounting to some twenty thousand dollars per capita impressive [Music] to give you an idea on august 5th 2020 these were his three main positions in other words the swiss central bank has become something of a huge investment fund the best thing is that all these positions are financed with new francs with the issue of new currency this is what is popularly known as printing banknotes who needs oil when you can have swiss francs the fact is that thanks to the huge international demand for swiss bank notes the central bank is able to issue more and more pranks franks which have ultimately financed the creation of an immense national treasure and something that is even more surprising today the swiss franc is not only supported by the swiss economy but also increasingly by this huge portfolio of investment in the best performing companies around the world investments which as we saw at the beginning are already bringing enormous benefits to the swiss economy in 2019 alone 50 billion dollars it is a move an experiment that is unprecedented and has led many analysts and academics to start to consider it a large hedge fund a hedge fund that sells francs goes short on francs and buys goes long on shares and debt securities but at this point the question is how far can the swiss take this strategy let's take a look finest swiss style [Music] in order for this whole game we've outlined to work the demand for swiss francs need to remain very high in other words for savers around the world to continue to see switzerland as a safe place to deposit their money and here the competitiveness of the economy and the solvency of the public accounts are key [Music] the more investors trust the greater the demand for swiss currency will be this will allow switzerland to continue to sell franks and buy shares and debt securities that generate a return what a business printing paper selling it and having people buy it almost as if it were ounces of gold [Music] and you know what at the moment it seems like the numbers are holding up public debt is low the government is financed at negative rates their economy is doing reasonably well they have practically full employment their taxes are moderate and on top of that we can find new stories like this swiss region may soon beat hong kong as best company tax haven hong kong will soon lose its status as the place with the world's lowest corporate tax replaced by the small mountainous canton of nidwalden in switzerland bloomberg switzerland is currently carrying out one of the most significant tax reforms in decades many cantons are drastically reducing the tax burden on corporate profits to attract more investment and encourage business growth of course the country also has some problems but lucky problems the fact is that the strategy followed by the central bank has aroused so much interest that some academics are already wondering whether it would not be appropriate for the swiss government to take advantage of its ability to finance itself at negative rates to issue large amounts of debt and use this money to create its own sovereign fund anyway as we said at the beginning in matters of skiing and money it's best not to mess with the swiss [Music] in a nutshell my friends this is the amazing story of the most unusual central bank in the world now if you've found this video that we've prepared in collaboration with value school interesting don't forget to click on the like button and subscribe to visualpolitik take care i'll see you next time [Music]

Channel: VisualPolitik EN

Views: 113,734

Keywords: VISUALPOLITIK, ENGLISH, value investing, value school, switzerland, richest companies in the world, why is Switzerland so rich, zurich, strongest currencies in the world, swiss franc, swiss central bank, swiss national bank, central bank policies, coronavirus, helvetic confederation, swiss cantons, swiss finance, apple, amazon, alphabet

Id: X3u3WpeI4-s

Length: 15min 5sec (905 seconds)

Published: Tue Oct 06 2020