The SNB has therefore emphasised the importance of diversification and limiting the concentration risks of our foreign currency investments. Today, 53% of the SNB’s FX reserves are invested in euro-denominated securities. This is in line with the share of Swiss exports to the euro area, and only five percentage points more than our allocation three years ago, though the size of our FX reserves, excluding swaps, increased from CHF 50 billion in 2008 to over CHF 225 billion by the end of September 2011. In order to promote further diversification, in 2010 the SNB added four new currencies to its reserves, namely Australian and Singapore dollars, Danish krone and Swedish krona. As a result, in addition to euros and these four currencies, the SNB’s portfolio is now composed of 26% US dollars, 9% Japanese yen, 5% pounds sterling and 4% Canadian dollars. Central banks generally have large holdings of government bonds due to their need for liquidity. As is widely known, in recent months the ratings agencies have been reviewing or have downgraded the credit ratings of many sovereign bonds. Despite this turn of events, approximately 96% of all our investments in fixed-income assets are rated AAA or AA. In closing, I would like to emphasise that we are actively exploring and monitoring new asset classes and currencies in developed and developing markets. The aim of this process is to continually reduce concentration risks and to further diversify the SNB’s FX reserves.
Likewise, the iTraxx Sovereign Western Europe Index, consisting of 15 sovereign CDS across Europe, rose by approximately 70% in the same period. 2  This is an approximation of the real effective exchange rate, assuming constant weights and inflation differentials. 3  Annualised volatility computed over one calendar month on the basis of daily movements. BIS central bankers’ speeches  1  rate on 6 September, EUR/CHF volatility has fallen below 10%, though it remains high from a historical perspective. The introduction of the minimum exchange rate also had an impact on some of the dynamic properties of the Swiss franc. As the red bar on the left side of chart 2 suggests, there was previously a positive correlation between the movements of the Swiss franc and those of risk indicators such as the VIX Index, i.e. investors tend to buy Swiss francs when perceived risk increases. In the same vein, the blue bar on the left of the chart shows that the correlation between the movements of the Swiss franc and those of risky assets, such as the equity shares on the MSCI World Index, has historically been negative. In other words, negative market developments have often been accompanied by a rising Swiss franc. Intriguingly, as the right side of chart 2 shows, the introduction of the minimum exchange rate appears to have had a significant impact on these correlations. The SNB’s implementation of monetary policy: liquidity measures On 3 August, the SNB started to implement liquidity measures against the massively overvalued Swiss franc.