After analysing the different alternatives, the SNB decided to use a combination of SNB Bills and reverse repos. These instruments are perfectly in line with our monetary policy strategy. There is, however, still a range of alternative instruments available, should there be a need for them. Let me explain briefly how the method chosen by the SNB works. As I have already mentioned, the SNB aims to keep the three-month Libor within a certain target range. This rate depends on the level of liquidity in the financial markets. If there is excess liquidity, the SNB must withdraw a certain amount to influence the level of the Libor. In so doing, it uses a two-pronged approach: on the one hand, it issues SNB Bills with different terms. Banks or investors who purchase these bills pay the SNB with liquid funds, which are thus drained from the financial system. On the other hand, the SNB also makes use of reverse repos in order to complete the withdrawal of liquidity achieved by the use of SNB Bills. In a reverse repo, the SNB delivers securities to a bank in exchange for liquid funds, thereby absorbing liquidity from the financial system. Reverse repos with a term of, in general, one week are used to manage short-term liquidity. SNB Bills, on the other hand, are used to manage liquidity in the longer term (one month or more).
Jean-Pierre Danthine: Signals from the financial markets and developments in the implementation of Swiss monetary policy Introductory remarks by Mr Jean-Pierre Danthine, Member of the Governing Board of the Swiss National Bank, at the half-yearly media news conference, Geneva, 17 June 2010. *  *  *  As has been pointed out in the speeches of my two colleagues, reports on the economy are quite positive and indicate a faster economic recovery than anticipated. The signals from the financial markets, however, are less favourable and I will be talking about them in the first part of my remarks. I will devote the second part of my comments today to developments in the implementation of monetary policy over the last few months. These developments result from the unconventional monetary policy measures adopted by the Swiss National Bank (SNB) to combat the financial crisis and to ensure price stability in line with its mandate. International financial markets experience an uncertain period The period of calm which prevailed on international markets from spring 2009 onwards gave way to a new phase of uncertainty in the second quarter of 2010. Since April 2010, the climate on financial markets has deteriorated again. Share prices have fallen, credit risk has risen and instability has increased on the major foreign exchange markets. As Philipp Hildebrand has already stated, the return of uncertainty chiefly reflects investors’ doubts about the capacity of certain countries to service their debt.