An international economic crisis often heralds an inflow of domestic and foreign capital to the Swiss franc, which has acquired a reputation as a safe haven on account of its historical behaviour. In other words, in uncertain times, the franc is seen as an anchor of stability, and is therefore much in demand. The currency can thus experience a strong short-term appreciation as a result. At the same time, a weak global economy can put pressure on sales volumes for the Swiss export industry. This increases the risk that production capacities cannot be fully utilised, that unemployment will rise sharply, and that the Swiss economy as a whole will slide into crisis. If an appreciation threatens macroeconomic stability in Switzerland through these channels, this has consequences for monetary policy. When conventional instruments reach their limits, the SNB has to resort to other tools in order to fulfil its mandate (cf. chart 11). First and foremost among these are foreign exchange market interventions. Since 2009, the SNB has, as you know, used this tool in a number of ways, purchasing foreign currency amounting to nearly CHF 500 billion. Between September 2011 and January 2015, for example, the SNB used this tool to enforce a minimum exchange rate against the euro. In this regard, I feel it is important to stress that considerable risks accompany on such interventions. First, market interventions aimed at preventing an appreciation expand the SNB’s balance sheet.
When there is a fixed exchange rate target, one might even have to expect an uncontrolled expansion of the balance sheet. This is attached to a number of imponderables. 6 In addition to major financial risks, it should be noted that, as the balance sheet grows, it will become increasingly difficult to reduce excess liquidity during a subsequent normalisation of monetary policy, and to fulfil the monetary policy mandate – of ensuring price stability – sustainably. Second, it is important to bear the following in mind: pegging the franc partially or fully to another currency would mean that the SNB would have to adopt the monetary policy of the  6  4  Cf. also Danthine, J.-P. (2015): Swiss monetary policy facts ... and fiction, speech at the Swiss Finance Institute Evening Seminar, Geneva, 19 May 2015. BIS central bankers’ speeches  currency area concerned. However, it could no longer be guaranteed that this monetary policy would always be optimally tailored to the needs of the Swiss economy. Thus, the benefits of an active exchange rate policy need to be properly weighed against the costs for the economy as a whole. But there is no one-size-fits-all method of determining the need to intervene in the foreign exchange market, or the best way to do so. The points to consider will differ depending on the situation. Current SNB monetary policy In that regard, I would like to briefly describe the SNB’s current thinking.