How long has the Swiss National Bank existed?
There was a time when Switzerland did not have a national currency. A great many different banknotes and coins were used. Switzerland also did not have its own central bank; paper money and coins were issued by a variety of banks. The system was complicated and not very efficient. For this reason, the Swiss National Bank was founded in 1907. As the country’s sole, independent central bank, it was tasked with conducting Switzerland’s monetary policy.
Coins and, later, banknotes had been around in Switzerland long before the SNB was established. Various domestic and foreign notes and coins served as means of payment. In 1850, shortly after the founding of the Swiss Confederation, Switzerland acquired its own national currency, the Swiss franc. At that time, however, the Swiss franc was not yet issued by a single central bank.
Who issued money before the SNB was founded?
Before the SNB was founded, many different cantonal and private banks issued a variety of banknotes. The second half of the 19th century saw the beginning of stricter regulations on issuance, which harmonised the design and denomination. In addition, the various banks were obliged to accept each other’s notes. However, the system still had significant weaknesses, so in 1891 the Confederation was granted the exclusive right to issue banknotes under the Constitution, a monopoly which the Confederation then transferred to the Swiss National Bank. It nevertheless took another 16 years before the SNB could commence operations.
A compromise leads to the foundation of the SNB
The Swiss National Bank commenced operations in 1907. Before it was founded, however, political agreement had to be reached on a number of issues. Discussions centred on the SNB’s legal form and domicile, as well as the financial interests of the cantons. A compromise was finally reached: The SNB was established as a special-statute joint-stock company administered with the cooperation and under the supervision of the Confederation. It was to have two head offices, one in Berne and the other in Zurich. The cantons were ultimately granted a share in its capital and profits, which compensated them for the fact that the cantonal banks were no longer permitted to issue banknotes.
Good to know
The Swiss National Bank has the legal form of a special-statute joint-stock company. This means that the statutory provisions applicable to ordinary joint-stock companies are valid only if the National Bank Act (NBA) does not stipulate otherwise. The original NBA of 1905 has been revised several times and brought up to date. The SNB’s legal framework has proved its worth and has enabled it to fulfil its mandate in the interests of the country as a whole.
From the gold standard to interest rate steering
The economic environment, both globally and in Switzerland, has undergone continuous change since the Swiss National Bank was founded in 1907. This has also had implications for the work of the SNB. When it commenced operations, the Swiss franc was still tied to gold; there later came a fixed exchange rate to the US dollar. The SNB’s task was to keep the Swiss franc stable against gold, and subsequently against the US dollar.
In 1973, Switzerland stopped pegging the Swiss franc to the US dollar. The introduction of a flexible exchange rate enabled the SNB to pursue an independent monetary policy for the first time in its history, and it was now able to concentrate on making sure that prices in Switzerland are stable. The SNB’s objective of ensuring price stability has remained unchanged since then.
However, the way in which it seeks to achieve this has changed over the years. The SNB began steering the money supply in 1973. At the beginning of 2000, it switched to an interest rate steering policy, having concluded that this would help it to better achieve its objective of price stability.
Has the SNB done a good job?
Since the SNB has been able to pursue an independent monetary policy, the inflation rate in Switzerland has been lower than in many other countries.
The SNB itself defines price stability as an inflation rate of less than 2% per annum. There were periods in the 1970s, 1980s and early 1990s when inflation was in some cases well above 2%. However, since the mid-1990s it has almost always been below 2%, with very few exceptions. Thus, over the past three decades, the SNB has done a good job, also in terms of its own objective.
