Globalization and the Euro: The Future Role of the Swiss National Bank
Georg Rich, Director of the Swiss National Bank
2nd International Banking Forum 2000, Zurich, 12 July 2000, 12.07.2000
The introduction of the euro has resulted in a centralization of European monetary policy. The European Central Bank (ECB) cannot but conduct a single monetary policy for the euro area as a whole. In contrast to other forms of globalization, the transition to the euro rests on a political decision. Frequently, however, globalization is promoted by market forces. This causes unease among many people, who are afraid that globalization will hurt them. In their view, globalization limits national authorities' scope for establishing a reasonable institutional framework for the private sector. These fears are exaggerated. Globalization encourages regulatory arbitrage and therefore puts national authorities under some pressure to harmonize their economic policies with other countries. But despite globalization and the euro, national authorities still possess substantial scope for shaping the institutions governing their own economies.
This conclusion is also applicable to Swiss monetary policy. As long as Switzerland maintains a floating exchange rate, the Swiss National Bank (SNB), in principle, is able to conduct an autonomous monetary policy. However, the SNB frequently follows a similar course as the ECB or formerly the German Bundesbank, due to the similarities in the economic environment. Even so, monetary autonomy benefits Switzerland in two respects: (1) Depending on circumstances, the SNB may take into account the specific needs of the Swiss economy. (2) The SNB contributes to preserving the relatively low level of Swiss interest rates. But if the SNB follows an autonomous approach, it runs the risk of eliciting strong fluctuations in the exchange rate. Unfortunately, in the presence of globalized financial markets, there are no ready recipes for quelling such fluctuations.
The speech also deals with the effects of the euro on Swiss financial markets. To date, there have been no signs of a decrease in the role of the Swiss franc as an international investment currency. New data of the SNB suggest that at the end of 1999 the Swiss-franc share of securities portfolios held by foreign residents and managed by Swiss banks amounted to 35 percent. This share has hardly changed since the introduction of the euro. International investors therefore continue to use the Swiss franc for diversification purposes. The effects of the euro on Swiss markets for fixed-income securities and equity, by contrast, are less clear.