| This key concept defines the relationship between the central banks and the political authorities. Independence means that a central bank can implement monetary policy decisions without adhering to instructions from the government or parliament. Its powers are usually defined in special legislation, and the senior management of the central bank - which is usually appointed by the government - has a duty to keep the public informed. Independence is meant to ensure that monetary policy does not fall victim to short-term political interests.
An independent monetary policy means that a central bank gears its monetary policy to the needs of its own country. Since a connection exists between a country's monetary policy and its currency, an independent monetary policy is only possible if the exchange rate for the currency is allowed to fluctuate freely. But if the exchange rate has to be held at a particular level against a foreign currency, the central bank is always obliged to buy or sell its own currency when there is a risk that it will deviate from this exchange rate. Such purchases or sales influence the money supply in the central bank's own country. If it buys foreign currency from the banks in order to prevent an appreciation in its own currency, the banks hold a larger quantity of the national currency and so their liquidity increases. If the central bank sells foreign currency in order to support its own country's exchange rate, then the supply of national currency is reduced and liquidity becomes tighter. If it is obliged to defend a particular exchange rate, the central bank loses control over the money supply and the level of short-term interest rates. Its monetary policy then follows the policy of the country to whose currency its own currency has been tied.
If the general price level rises and money suffers a loss in value, this is described as inflation. In Switzerland inflation is measured by the national consumer price index. The percentage increase in the index is known as the inflation rate. Inflation is the opposite of deflation.
The National Bank regularly publishes and provides a commentary on its forecast trend in inflation over the next three years. It uses this inflation forecast as a guide in deciding its monetary policy stance. If forecast inflation is inconsistent with price stability, monetary policy needs to be reviewed.
The price at which a lender hands over a sum of money for a fixed period. Interest is paid by the debtor to the creditor. It is expressed as a percentage of the sum made available (interest rate) and usually relates to the period of one year.
The IMF is an international organisation whose member states cooperate on issues relating to economic and monetary policy. Switzerland has been a member of the Fund since 1992. The IMF and the World Bank were set up in Bretton Woods (USA) in 1944. Its headquarters are in Washington. It regularly reviews the economic and monetary policy of its member countries and it holds funds with which to provide financial assistance to countries in difficulties.
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