Markets undergoing a process of transformation

Dewet Moser, Alternate Member of the Governing Board

Money Market Event, Zurich, 27.03.2014

Last year, the Swiss National Bank (SNB) continued to gear its monetary policy implementation to the minimum exchange rate. The situation in Europe was marked by progress in overcoming the debt crisis, continued easing on the financial markets and economic recovery. Unlike 2012, the SNB did not need to purchase any foreign currency on the foreign exchange market in order to enforce the minimum exchange rate.

The interbank market is essential for securing the minimum exchange rate. In this market, the SNB monitors the minimum exchange rate on a permanent basis and is active with purchase offers of CHF 1.20 per euro. While Swiss franc turnover for spot transactions has recorded a slight decline over the entire foreign exchange market in the past few years, volume on the interbank market has collapsed. This is because, more and more, large banks are matching buyers and sellers internally, thereby offsetting and settling transactions directly against one another. Moreover, banks are creating their own customer platforms or signing up to multibank platforms. This reduces activity on the interbank market. Nevertheless, the market is fully operational, and transaction costs are still low. The SNB also makes use of the advantages of current market structures, for instance for managing its foreign currency investments.

On the money market, turnover is still very modest due to the ample liquidity in the banking system. Two topics are of particular concern to the SNB. The first is benchmark interest rates. Following the notorious Libor manipulations in 2012, efforts are continuing at central banks, supervisory authorities and financial market participants to restore the representativeness, integrity and robustness of benchmark rates. What would be ideal would be a combination of reference variables for the unsecured and the secured segment at national and international levels; for this task, creative approaches are by no means discouraged. The second area of concern is the Swiss money market infrastructure. At the beginning of May, the SIX repo trading platform will commence operations. This means that the entire value chain will be provided under one roof. The change in platform is the first step in a series of changes, with special attention being given to collateral management, i.e. the use and management of securities.