Swiss central bank in swap deal with Poland

Switzerland's national bank agreed on Monday to a deal with its Polish counterpart to cover any cash shortages in Poland as borrowers face repaying loans in expensive Swiss francs.

Swiss central bank in swap deal with Poland

“The Swiss National Bank (SNB) and National Bank of Poland (NBP) have concluded a Swiss franc/zloty swap agreement,” the SNB said in a statement.

“In the event of tensions in the Swiss franc interbank market, the facility enables the NBP to provide Swiss franc liquidity to banks in Poland.

“The two central banks do not anticipate that this agreement, which has been concluded as a precautionary measure, will need to be called upon.”

According to the terms of the “swap” agreement, SNB would have to approve any demands for funds by NBP for a maximum duration of one week.

A spokeswoman for SNB said that Polish households had “a relatively high volume” of franc-denominated loans that could require refinancing.

The agreement was the second of its kind between the two countries since 2008 and similar to one drawn up between Hungary and SNB in 2008, the spokeswoman said.

“This (swap agreement) is because there is a relatively high volume of outstanding loans in Poland. There could be a high need to refinance these loans there,” said Silvia Oppliger, SNB spokeswoman.

“But this is a precautionary measure and we don’t think it will have to be activated. If it is needed, it is in place.”

Since September last year the Swiss franc has been capped at 1.20 to the euro by the SNB, but it was at 1.30 to the euro at the beginning of last year and significantly more attractive in 2007 when investors banked on getting 1.64 francs to the euro.

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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?