That is why you can discount claims that disagreements can be used reliably to predict future movements in rates. Sometimes they do, sometimes they don’t. Much of the commentary on the MPC has been subject to what I call the “small sample” problem. Descriptions of diversity of view within the MPC have ranged from the Committee allegedly acting as “the North Korean politburo” during periods when most of the votes were unanimous, to the view that it was “a bunch of squabbling senior common room academics” during an earlier period when split votes predominated. In fact, as chart 7 shows, there is no obvious pattern over the lifetime of the MPC. There are times when the state of the economy is difficult to read and there are naturally differences of interpretation leading to split votes. Equally, there are times when the nature of the economic shocks is not in dispute and the response of the MPC is agreed by all members. For example, a sequence of nine unanimous decisions starting in the summer of 2004 reflected a shared view within the MPC that Bank Rate at 4% was too low and that some of the monetary stimulus it provided should be withdrawn. Differences of view tell you more about the nature of the uncertainty confronting the MPC than the nature of the MPC itself. Similar arguments apply to the question of whether the MPC has become more or less “activist”. Large committees can be subject to inertia.
Not just the euro, but the Swiss franc, too, had been losing ground against the US dollar. In contrast to summer 2011, when the Swiss franc had been significantly overvalued against all other currencies, by the time of the discontinuation, Swiss franc strength had given way to euro weakness. The increasingly divergent monetary policy stances of the Federal Reserve and ECB were also putting pressure on the minimum exchange rate against the euro. The SNB was forced to intervene in the foreign exchange market on an ever larger scale. This was reflected in the monetary base (the volume of liquidity created by the SNB), which had expanded in several surges since 2009 and was now rising sharply again (cf. chart 4). Given the changed international environment, the minimum exchange rate of CHF 1.20 per euro was no longer sustainable. The SNB could only have enforced it through ongoing foreign currency purchases of rapidly increasing magnitude – in an environment where there was no prospect of a long-term stabilisation on the exchange rate front. Delaying the decision to discontinue would not have mitigated the economic consequences, but the losses for the SNB would have been far greater. This would have compromised the SNB’s ability to fulfil its mandate in the long term and would have undermined its independence in matters of monetary policy. Monetary policy since the discontinuation of the minimum exchange rate Developments since the minimum exchange rate was discontinued have confirmed our assessment at the time. The euro continued to weaken against the US dollar.