By John Revill
ZURICH (Reuters) - The Swiss National Bank should convert its massive pile of foreign stocks and bonds into a sovereign wealth fund like Norway's to support government spending, a group of economists said.
The SNB has made $1 trillion in foreign currency investments, including shares in Amazon (NASDAQ:AMZN), Google-owner Alphabet (NASDAQ:GOOGL) and Starbucks (NASDAQ:SBUX), during its campaign to halt the appreciation the Swiss franc.
The explosion of its balance sheet has prompted politicians' calls for the SNB to increase its payout to fill the funding gap in the state pension scheme.
Now a group of academics, who previously said the SNB should increase its annual payment to the government, said it should shift its assets into a sovereign fund, an idea the SNB has rejected in the past.
"The earnings potential from these assets is considerable, and could be used to relieve the burden on taxpayers," the SNB Observatory said in a paper published on Wednesday.
"The value of SNB foreign assets and the return that they generate are not negligible anymore," the report said. "Every percent return from these assets amounts to roughly 10 billion francs."
Norway's $1.3 trillion sovereign wealth fund, set up 25 years ago to share oil and gas revenues with future generations, provided $45 billion for its government this year.
The SNB, which made a 2020 profit of 20.9 billion francs, distributed a maximum payout of 6 billion francs, but this figure could be far higher if the money was managed separately, the SNB Observatory said.
"There is no reason why a Swiss fund, being of a similar size to the Norwegian fund and being as well managed, could in 2021 not have made a payout of $40 billion or more, that's reasonable," said Charles Wyplosz, professor of economics at The Graduate Institute, Geneva.
The huge balance sheet risked distracting the SNB from its main role steering monetary policy, he added, while doubts could emerge whether it would still expand assets further via foreign currency purchases and risk large losses.
"The market may not fully believe the SNB would intervene in a truly unlimited fashion," said Yvan Lengwiler, an economist at the University of Basel and a former economic advisor to the SNB.
The SNB, which reviews monetary policy on Thursday, has been sent the report but has not commented so far, said the authors who want to launch a public debate on setting up a sovereign wealth fund.
SNB Chairman Thomas Jordan has said using the central bank's funds in a sovereign wealth fund would a "very bad idea" that would damage its ability to carry out independent monetary policy.
Jordan has also warned against making central banks an instrument of state financing amid the coronavirus pandemic.