The policy of the Swiss National Bank in the new international environment

Jean-Pierre Roth, Vice Chairman of the Governing Board

Université de Fribourg, Séminaire d'économie internationale, Fribourg, 11 April 2000, 11.04.2000

The globalisation of the financial markets and the launching of a single currency in Europe pose significant challenges for the Swiss National Bank in conducting its policy. Free, cross-border financial flows are a reality, the flow of information is global, and the electronic media permit continuous arbitrage. In Europe, the consolidation of the monetary landscape has led to a new and unique situation in that Switzerland is located in the heart of a monetary area in which it has no share. Even more than in the past, the markets are today in a position to punish, by their reactions, inappropriate or seemingly inappropriate policies.

The National Bank meets these challenges by reinforcing its endeavours at transparency, coherence and communication. This is also the thrust of the innovations in the implementation of monetary policy introduced at the beginning of the year.

In aiming to improve transparency, we now quantify our goal of price stability and specify our monetary policy course by announcing a target range for the 3-month interest rate.

Monetary policy measures must be comprehensible in addition to being coherent. That is why we regularly publish our assessment of the economic and monetary situation, as also our conclusions for monetary policy based on this assessment. In so doing, we provide the public with the means of understanding and judging the measures we have taken. We hope this will enhance our efficiency in conducting our policy and lead to a more rational reaction by the markets, i.e. that it will strengthen our capacity to take the necessary steps for maintaining price stability in Switzerland.

Despite these efforts, our manner of proceeding will never be fully transparent. There is no model that automatically points to the "correct" monetary policy measures. We are simply trying to create a framework that will make it easier to reach meaningful decisions. There will, however, always be a certain measure of discretionary powers to be exercised by the monetary authorities. Nevertheless, a systematic decision-making process helps to limit these discretionary powers.

Our monetary policy experiences in a global environment are encouraging. Even in the face of fully integrated markets and totally unrestricted financial flows, the Swiss franc exhibits no erratic fluctuations. Rather, the exchange rate reflects the relative development of the fundamentals of the Swiss economy. This applies notably to the exchange rate between the Swiss franc and the euro. Fears that the effects of financial globalisation and European integration might hamstring Swiss monetary policy have thus not materialised.