On the pulse of the financial markets
Dewet Moser, Alternate Member of the Governing Board
Money Market Event, Geneva, 17.11.2016
Since the financial crisis, the Swiss National Bank (SNB) has been directing its attention to markets which had been of less interest previously. Its penetration of market processes and structures is more systematic than ten years ago. Thus, although the exchange rate has always played a key role for a small open economy like Switzerland, and remains a central factor for monetary policy decisions, in terms of implementing monetary policy, the foreign exchange market was for a long time overshadowed by the money market. This has changed fundamentally in recent years. Today, the SNB is one of the major players on the foreign exchange market, since this is necessary in order to carry out its monetary policy mandate.
For years now, turnover from spot transactions on the interbank market has been in decline. This also affects currency pairs which are crucial for Switzerland. However, until now it has not, on average, been accompanied by higher transactions costs for EUR/CHF, USD/CHF and EUR/USD. Having said that, jumps in the exchange rate have repeatedly occurred in the course of trading. The Brexit vote provided an example of how rapidly heartbeats can rise on the foreign exchange market.
The SNB continually analyses market activities, since its monetary policy requires it to be ready to intervene at any time, if necessary. In the run-up to events with the potential for decisive change, like the Brexit vote and the US elections, it also takes extensive additional preparatory measures so as to be equipped for all eventualities. The SNB applies state-of-the-art technology to keep pace with the rapid developments on the foreign exchange market. As part of the implementation of its monetary policy, it makes its contribution to market developments. Ultimately, however, price determination is left to the forces of supply and demand.
In the money market, the SNB makes substantial contributions in two areas. On the one hand, it supports efforts to reform reference interest rates at the international and national levels. In Switzerland, the parties involved are members of a national working group for reference interest rates, whose most important objective is the replacement of TOIS fixing by SARON at the end of 2017. On the other hand, the SNB is working to achieve a modern and efficient market infrastructure. Through SIX, it is engaged in optimising the Swiss Money Market Value Chain. The medium-term plan is to introduce a triparty agent, which should considerably facilitate collateral management for market participants.