Shifts in income distribution might not happen fast if strong structural forces push in the other direction. Public policies (fiscal, social safety nets) certainly have a role to play, but they take time to redeploy and implement. Finally, consumption patterns differ across countries and are strongly influenced by differences in taste and level of developments. So, global rebalancing in consumption requires a change in production structures. That change will not – and should not – occur overnight. Attempts to speed up the process would only result in major disruptions and increased volatility. Rebalancing will be progressive but should start now. It cannot be achieved without some adjustment in relative prices. In market economies, it is important that producers face the right price environment when they make long term decisions about investing in technology and productive capacity. Countries are free – and should remain free – to choose whatever exchange rate regime and policy suit them best, taking into account their specific national circumstances. Real exchange rate adjustment, however, is an integral part of a global and orderly rebalancing strategy. That wisdom is best embodied in one of Governor Hu Xiaolian’s speeches, last July, where she demonstrated how domestic factor price and exchange rate adjustments are both substitutes and complementary. Many interactions between our economies occur through capital rather than good markets; This is normal in a “multipolar” world given the diversity of countries, with different preferences, demographics and levels of development. Some of us save more than we spend. Others need capital to finance their growth.
To date, though, we do not yet observe trading in these instruments in the secondary market. 15 Importantly, we have succeeded in increasing the stock of outstanding reserve-absorbing operations without depressing interbank activity. As Slide 14 shows, trading volume in the interbank money market even increased temporarily following the rate hike. It has remained solid since then, ensuring a robust calculation basis for SARON. The stock of outstanding repo transactions in the overnight segment is currently close to 10 billion Swiss francs, which is near the year-to-date average in this market segment. The pass-through of our September rate hike has also progressed well in other money market segments. For instance, as we show in Slide 15, overnight rates in the unsecured money market also shifted up significantly during the first business day on which the positive policy rate went into effect. We have also seen a good pass-through to SARON-based swap rates, as the 1-week rate, the green line on the slide, illustrates. Naturally, as swap rates incorporate  15  Some banks, however, do seem to be interested in secondary market trading, as they have begun placing quotes for SNB Bills. Page 8/10  expectations of future overnight interest rates, the 1-week swap rate had already increased before the monetary policy assessment in September. On the slide, we also show the 1-week implied rate from USDCHF FX swaps. This rate is generally somewhat lower than the other Swiss franc money market rates.