Eurozone citizens moving billions to Switzerland

Bloomberg/BW: - Switzerland saw its foreign currency reserves balloon by 66.2 billion Swiss francs ($69.5 billion) over the past month as the country's central bank spent heavily to prevent its currency from appreciating against the euro, according to data released Thursday.

The franc is considered a safe haven for investors concerned about the euro-zone debt crisis.

The Swiss National Bank held foreign currency reserves worth 303.8 billion francs in May, an increase of 28 percent from the 237.6 billion francs in April.

"A large part of the increase in foreign currency reserves between the end of April and the end of May can be traced to the purchase of foreign currency to enforce the minimum exchange rate," said SNB spokeswoman Silvia Oppliger.

Indeed we had a big spike in foreign currency reserves of the Swiss National Bank in May.

SNB foreign currency reserves (CHF MM)

And this was in fact caused by the SNB defending the 1.2 level on the EUR/CHF (euro/swiss) exchange rate - selling CHF and buying EUR (to keep CHF form appreciating too much). The reason the SNB had to do such a massive volume in FX transactions is that the euro area citizens are flooding Swiss banks with deposits (buying CHF and selling EUR). As Kostas Kalevras points out, the ECB's foreign reserve liabilities shot up €77.5bn in May to accommodate this transfer to Switzerland and to other non-euro countries. This confirms that not only do we have a run on periphery banks, with cash moving to Germany, but deposits are rapidly moving abroad as well. And Switzerland has become the main beneficiary (more on that later).

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