Switzerland: An Island in Euroland?

Jean-Pierre Roth, Chairman of the Governing Board

Bank of Greece, Athens, 21 May 2004, 21.05.2004

The introduction of the euro, in January 1, 1999, constituted a real revolution for Europe and represented arguably the major postwar stage in European integration. For Switzerland, a highly integrated country completely surrounded for the first time by one single currency, that fundamental change represented a particular time in history as well, and was associated with some concerns. Among the uncertainties were the potential consequences of the introduction of the euro on the Swiss franc and on the effectiveness of Swiss monetary policy.

Our fears of a euro destabilizing the Swiss franc did not materialize. On the contrary, the Swiss franc appears now to be less affected by exchange rate shocks and more shielded from speculative movements. The introduction of the euro in fact has resulted in a stabilized international monetary system, which has benefited third currencies outside the euro/dollar block. By absorbing exchange rate shocks, the euro contributes to stabilizing aggregate exports of countries trading with both the E.U. and the U.S.

The scenario of a loss of monetary identity of the Swiss National Bank did not occur either. As an open economy strongly oriented towards global markets and with inflation considerably lower than in the euro zone, the monetary needs of the Swiss economy differed considerably from the euro zone. The Swiss National Bank, with its traditionally low inflation and strong credibility, has been able to react quickly to the global slowdown. As a consequence, the spreads between the Swiss franc and euro deposits even widened. Switzerland thus continues to enjoy an interest rate bonus and pursues a flexible and autonomous monetary policy tailored to the needs of the Swiss economy.