Central banks in the advanced economies increasingly began to resort to unconventional instruments. At the SNB, these included long-term repos, purchases of Swiss franc-denominated bonds issued by domestic, private-sector borrowers and interventions in the foreign exchange market. It is worth noting that the SNB had intervened only very rarely in the foreign exchange markets between the early 1980s and 2009. And on the occasions when it had, the SNB’s interventions had typically been small-scale and had been coordinated with the Group of Ten central banks. BIS central bankers’ speeches  1  This changed in March 2009, when, having reduced the short-term interest rate to near zero, the SNB began purchasing foreign exchange in an effort to counter upward pressure on the Swiss franc and prevent an undesirable tightening of monetary conditions. The first escalation in the euro area debt crisis in the spring of 2010 required the SNB to make extensive foreign currency purchases; these were provisionally halted in June 2010 once the economic recovery had gained a foothold. In the first half of 2011, the situation in the euro area took another turn for the worse. Other euro area countries were being dragged into the crisis. The global economic outlook deteriorated and uncertainty on the financial markets was compounded by the US budget dispute. Upward pressure on the Swiss franc was immense at this time. In August 2011, the real export-weighted Swiss franc exchange rate was 40% above its long-term average (cf. chart 2).
(X) “A million dollar question” has been asked at Forbes, about whether exchange rate stability can be maintained under such circumstances. The answer is: yes, given the current modalities, it can be maintained as long as we manage to repay our debts and as long as we can obtain new loans from abroad. In this respect, the current world situation is favourable, because free liquidity grows again and waits to be placed, credit supply goes up and buyers are sought for this money. A continuation of EU accession negotiations improves the political perception of Croatia as a debtor. Therefore, I have no doubts that the current search for a billion dollars, or euros or whatever, will be successful. This is a relief, but it also poses the most serious dangers to this country: the danger of inactivity, the danger of believing that we can go on functioning by following the established routine and the danger that we neither have learned, nor will learn enough from the crisis. It is often repeated that our problems are of a structural nature and that it takes time to carry out the necessary reforms. This statement is not unfounded. However, an old Chinese wisdom says: “Even the longest way starts with the first step.” The truth is that the first step is often the most difficult, and we have been putting it off for a long time. BIS Review 2/2010  3