Monetary policy in the grip of the euro?

Thomas Jordan, Alternate Member of the Governing Board

Symposium of professors of economics from German, Austrian and Swiss universities, Zurich University of Applied Sciences Winterthur, 19.05.2005

The euro is now a vital ingredient in the process of economic and political integration in Europe. It has also changed the monetary policy situation in Switzerland.

Since the launch of the single currency, there has been no discernible upward or downward trend in the exchange rate between Switzerland and the euro area. Moreover, the volatility of the euro/Swiss franc exchange rate is very low by international standards. Monetary conditions in Europe are significantly more stable now than in the past. As the euro area is Switzerland's biggest trading partner, this is an enormous advantage for the Swiss export sector.

Even though the euro has established itself as a leading currency internationally, this has not sidelined the Swiss franc – either in Switzerland or in the international financial markets. At the same time, the Swiss franc's significance as a safe haven currency has tended to wane.

The introduction of the euro has not compromised the autonomous monetary policy of the Swiss National Bank (SNB). It sets the range for the three-month Libor with the goal of maintaining price stability in the medium term; exchange rate targeting is not a strategy. Experience in recent years has shown that the SNB is able to make use of its room for manoeuvre vis-à-vis the ECB. The fact that the SNB pursues an independent monetary policy does not, however, mean that it ignores the euro. The euro/Swiss franc exchange rate and the economic development of the euro area have a significant impact on the development of the Swiss economy and on prices in Switzerland. Consequently, these elements play a pivotal role in determining the monetary policy stance of the SNB.