However, in the interests of the Swiss economy as a whole, it is important that the negative interest rate be allowed to function as effectively as possible, by applying it broadly and keeping exceptions to a minimum. The aim of the negative interest rate is to reduce the relative attractiveness of Swiss franc investments, and to counter upward pressure on the exchange rate. Hence, it is primarily directed at the external contributions to monetary conditions in Switzerland. As such, the negative interest rate is not an ordinary policy instrument. It is a consequence of the fragile international environment and its exceptionally low interest rates. Historically, Swiss interest rates have been lower than those of our main trading partners. This interest rate differential is a reflection of our country’s long-standing strengths, including political stability, sound institutions, a resilient economy, and a first-class financial sector. My first chart shows the interest rates of German and Swiss ten-year government bonds. The orange area indicates the interest rate differential. As central banks around the world fought to mitigate the worst effects of the global financial crisis, short-term interest rates in many advanced economies fell towards zero. Importantly, foreign interest rates, including those in Germany, have fallen more sharply than those in Switzerland. As a result, Switzerland’s interest rate differential had practically disappeared, making Swiss franc investments more attractive than comparable investments in other currencies.
Similarly, we hope that this MAS office can also cater to the needs of the larger Chinese financial community by enhancing understanding and contacts with Singapore and the regional markets, as thereby contribute in our own small way to the continued development of China’s financial sector. 2  BIS central bankers’ speeches  Concluding Remarks 18 On behalf of all my colleagues in MAS, I would like to express our strongest appreciation to the People’s Bank of China for their approval and support for MAS’ representative office in Beijing. 19 We look forward to taking full advantage of this milestone collaboration to deepen our financial and economic cooperation and take our bilateral relations to new heights. 20  Thank you. BIS central bankers’ speeches  3