Central Bank Assets

This is an interesting article about the liquidity of the Swiss National Bank:  https://snbchf.com/snb/marc-meyer/central-bank-independence-farce/.  Most of the assets of the SNB are holdings of foreign currency, either US dollars or Euros. If dollars or euros go done in value against the Swiss franc, then the SNB loses money.

And it has lost money, boatloads.  "Throughout the past decades, our National Bank has invested in foreign currencies. The accumulated foreign exchange losses of the SNB have approximately reached into the three-digit billions – at the expense of Switzerland."

If the franc keeps going up against dollars and euros, then the SNB could become technically insolvent, with liabilities exceeding assets.  How could it get out of this mess?  By printing more francs and buying euros and dollars with them.  This would cause the value of the franc to drop and the value of euros and dollars to rise, thus creating foreign exchange gains, but causing inflation internally.

So the SNB has a vested interest in keeping the euro and dollar strong.

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Now, contrast this with the Federal Reserve.  Its assets are mostly US Treasury Bonds and Fannie Mae and Freddie Mac bonds.  If interest rates rise, then the value of its assets will drop, and if they drop enough, the Fed could become technically insolvent.  It would fix it primarily by suspending payments of interest to the Treasury.  But it may need to do more than this, by printing more dollars to buy more Treasury bonds, which could cause the value of the bonds and Fed assets to rise and interest rates to drop (QE), thus weakening its liabilities (FRNs) against its assets.

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To take this a step further, what would happen if both of these occurred at the same time?  The SNB would be printing more francs to buy dollars (to try to strengthen the dollar) and the Fed would be printing more dollars to try to weaken the dollar.  The net effect is that the SNB is indirectly purchasing Treasury bonds.

So just a thought, why doesn't the SNB buy US Treasury bonds directly (maybe it already is, I don't know).  Except then it would face losses if interest rates rise.  And another thought that the SNB is enabling more US debt.  And a final thought, why did the SNB sell off most of their gold?  It sure seems like a safer long-term investment than the ever-increasing U.S. debt.