As a representative of a country that has had floating exchange rates for over thirty years now, I can only underscore the importance of an exchange rate regime that reflects the realities of the market. During the past three decades, the Swiss franc has been an essential factor in the development of the Swiss economy. However, it was never a reason for our exporters to sit back and relax. On the contrary, the franc put pressure on them to become more efficient and to specialise in those product areas in which we have a real competitive edge. Consumers also profited from the strong Swiss franc in that the prices for imported goods have fallen significantly. A currency that is accurately priced enables the economy to benefit from improvements in its terms of trade triggered by productivity increases. If a country’s currency is undervalued, products are sold on the market at give-away prices, and productive resources are inefficiently allocated. The functioning of a currency system, therefore, plays a pivotal role in the development of a country’s prosperity, and monetary reform, as China is currently expected to tackle, is a very delicate undertaking. Unless new monetary rules and mechanisms can immediately convince the market of the appropriateness of the new regime, a risk of speculative pressure will emerge. Switzerland has experience in this regard as well. We ultimately opted for flexible exchange rates, i.e. a system in which the Swiss franc’s value is continuously in line with market forces.
Even though Switzerland is a modest player on the international scene it carries more weight than one would imagine. The country’s edge lies in its small size, leaving it no other option than to open up to international trade. Moreover, its liberal philosophy and sound financial standing have given it the necessary tools to conduct a policy of openness and to have a strong presence abroad. Having chosen the option of free trade and free movement of capital, Switzerland is, in many respects, better prepared than others to take advantage of the greater opening of the borders brought about by globalisation. To be sure, this is not an easy ride, as international competition always necessitates painful adjustments, and Switzerland is no exception in this respect. When we take stock of the last few years, however, the bottom line looks favourable. We would certainly be in an even better position now, if we had built up a stronger presence in emerging economies. As you can see, contrary to what  2  BIS Review 45/2005  some people believe, globalisation is not the cause of the weak growth of the Swiss economy; indeed the opposite is true. Foreign trade is the engine driving our economy. It has expanded in recent years in step with the global economy. By contrast, our domestic market has stagnated and registered only limited gains in productivity. And that, ladies and gentlemen, is where our problem lies. BIS Review 45/2005  3