Some old habits in explaining FX rates no longer make much sense. For example, the concept of fundamental factors that determine the current account, whose balance is then equilibrated by capital flows. This vantage point usually rests on the implicit assumption that trade flows are the "real" and causative side of the coin, while capital flows are a flexible gap filler, a sort of second round financial mechanism set off to match any given trade imbalance. In a world of integrated capital markets one may also have good reason to argue the other way round. Why are long-term capital flows, driven by perceived rates of capital productivity, less "real and fundamental" than trade flows? Would it not also be possible to argue - based on recent experience - that capital flows to the United States were, for a long time, the fundamental causative change which effected - as a consequence - the deterioration in the current account? Be that as it may, traders, investors and central bankers would be well advised to accept the fact, and be prepared for it, that in the short- and medium-term surprises are always possible in the Forex markets. This was so in the past and will continue to be so in the future. Smallness and connectedness: some facts Let me now talk about the SFR, about its main features as a currency which is traded and held in international portfolios.
Jean-Pierre Roth: Monetary policy and credit markets Summary of a speech by Mr Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank, at the University of St Gallen, St Gallen, 22 January 2004. The complete speech can be found in German on the Swiss National Bank’s website (www.snb.ch). *  *  *  The economic slump of the past two years has affected the credit markets. Corporate loans declined, and on the capital market redemptions of shares and bonds of private borrowers exceeded new issues. In this speech, a few general points concerning credit financing and monetary policy will be discussed. The financing opportunities and, concomitantly, a borrower’s expenditure behaviour depend on the value of capital assets eligible as collateral or, more generally, on the borrower’s balance sheet structure. Due to the major significance of real estate as security, the situation on the real estate market in turn has a considerable bearing on credit conditions. The Swiss National Bank thus keeps a careful eye on price development in the real estate market. Monetary policy influences the prices of investments and thus impacts on the economy via the borrowers’ balance sheets. This is not the only channel - and certainly not the most important one through which monetary policy exerts an influence; it may, however, be relevant under certain circumstances. Since corporate balance sheets differ considerably from one enterprise to another, monetary policy has distributive effects.