SNB warns on challenge of forex reserves The Swiss National Bank warned that managing its ballooning foreign exchange reserves had become a "major challenge" and said it was in talks with other central banks about how to avoid distorting local markets with its hefty purchases of overseas government debt. Switzerland has built up the fifth-largest stockpile of foreign currency reserves in the world as its central bank battled heavy inflows this year from overseas investors seeking a haven in the Swiss franc amid the market turmoil in the eurozone. While pressure on the franc has lifted recently, the SNB has accumulated SFr424bn in overseas currencies on its balance sheet owing to its policy of keeping the Swiss franc weak to help its country's exporters. Since September 2011, the central bank has promised to buy euros to keep its exchange rate against the franc at SFr1.20. In a speech on Thursday, Fritz Zurbrügg, member of the governing board at the SNB, said: "Managing these reserves is currently a major challenge, and has become the subject of much scrutiny by both the media and SNB watchers." We are aware that the huge amounts we have under management could impact significantly on market prices. To prevent this kind of problem, we control the volumes we place on the markets, so as to avoid having any perceptible market impact. Mr Zurbrügg added that the SNB was engaged in "active discussion" with other central banks as part of its policy of ensuring that its investments do not destabilise other markets. The SNB's admission that the size of its foreign reserves has become problematic comes after a controversial report from Standard & Poor's, the rating agency, argued that Switzerland had been responsible for distorting bond yields in the eurozone due to its large purchases of government debt, prompting a rare rebuttal from the SNB. The SNB has been actively diversifying its holdings after the proportion of euros on its balance sheet rose to 60 per cent over the summer due to its efforts to weaken the franc. Currency investors say that the Swiss central bank has become one of the most closely watched investors in the forex market, as traders have tried to anticipate which currencies the SNB will buy. Recent figures showed the SNB had managed to reduce its euro holdings to just 48 per cent in the third quarter of the year. Analysts said the figures also indicated that the central bank had been one of the largest overseas buyers of UK government debt over the period, with sterling holdings rising more than £10bn. The central bank invests most of its portfolio in highly-rated AAA and AA bonds, with just 12 per cent in equities. However, some of its 88 per cent allocation to bonds includes cash held with other central banks until it can be drip-fed into the markets, in line with the SNB's policy of smoothing its purchases to avoid market disruption. Mr Zurbrügg said that the central bank tried to be as transparent as possible, pointing out it is one of the few global central banks to publish details of its holdings on a quarterly basis.