As you can see, exchange rate movements are the main cause of changes in our foreign exchange reserves. Returns in local currency play only a secondary role. As I pointed out earlier, diversification is the only way for the SNB to mitigate the impact of foreign exchange fluctuations. Hedging would mean diluting the effectiveness of monetary policy, because purchasing protection against exchange rate movements would effectively cancel out the impact of monetary policy on the Swiss franc exchange rate. The challenges ahead To finish, I would now like talk about some of the challenges the SNB is always faced with in the management of foreign exchange reserves. First challenge: Ensuring that our resources, methods and structures guarantee the effective management of our portfolio. I have already emphasised that the complexity and risk associated with the management of our investments have recently increased significantly. This has required a corresponding increase in our management team headcount. I am confident that we now have enough staff for both the Asset Management and the Risk Management units to meet the challenge. We are also prepared to continue developing our structures should the need arise. As regards governance, we have ensured a strict separation between asset management and risk management, by transferring the Risk Management unit to another department of the SNB. Our asset managers’ performance is constantly benchmarked against the relevant markets. For some portfolios, performance is also benchmarked against that of our external asset managers. Second challenge: Achieving optimal portfolio diversification.
The Asset Management unit then implements this strategy, monitored by the Risk Management unit. Risk Management is also tasked with reporting regularly to the Governing Board and the Bank  2  BIS central bankers’ speeches  Council, which oversees the entire process. This multiplicity of players involved in foreign exchange reserve management, as well as the division of responsibilities, enable conflicts of interest to be reduced as far as possible, and allow effective control of the actual management of reserves. How do these guidelines translate into foreign exchange reserve allocation in practice? Last week, we published the data on the allocation of our foreign exchange reserves for the third quarter of 2012. I would like to take you through those data, and highlight the main areas which may have given rise to discussion. This is the breakdown of foreign exchange reserves by currency (cf. slide 3). As you can see, the euro is our principal investment currency, and its share in our investments has remained largely unchanged for the past number of years. If we take quarterly data as a basis, we can see that this share has fluctuated between 45% and 65%. These fluctuations come about because of the time it takes us to reallocate our portfolio following large inflows of new foreign exchange reserves. These amounts are then gradually diversified across other currencies in order to restore the original allocation.