However, the banks experienced repeated crises, and in 1913, the Federal Reserve was established to stabilise the private banking system. In the post-war years, the value of western currencies was pegged to gold under the Bretton Woods system: an ounce of gold was worth USD 35. All the other member countries – including Norge – agreed to peg their currencies at a fixed rate to the US dollar. The gold standard was abandoned by President Nixon during the Vietnam War, and the traditional fixed exchange rate system was terminated in 1971. The value of money is no longer linked to precious metals. Today, money is so-called fiat money. The term derives from the Latin “fiat”, meaning “let it become”. In his book Sapiens – A Brief History of Humankind, Yuval Noah Harari writes: “Trust is the raw material from which all types of money are minted”. And he goes on: “..., the fact that another person believes in cowry shells, or dollars, or electronic data, is enough to strengthen our own belief in them, […]. Christians and Muslims who could not agree on religious beliefs could nevertheless agree on a monetary belief, because whereas religion asks us to believe in something, money asks us to believe that other people believe in something.”3 Money has value because – and only because – everyone believes in its value. Money is minted from trust. But how is this possible? How can money retain stable value in a system exclusively based on belief and trust? First, money must be usable.
While nominal export turnover fell sharply, real export volumes held up much better. Hence, when the strong appreciation of the Swiss franc raised prices for foreign buyers of Swiss products, Swiss companies responded by cutting export prices, thereby preventing a sharp fall in real export volumes. Further evidence for this ‘margin compression’ comes from our own surveys, which SNB delegates for regional economic relations conduct regularly among Swiss companies. Global demand conditions have deteriorated somewhat in recent months. Emerging market economies in particular – but also some commodity-producing countries – have seen economic momentum fade. By contrast, major advanced economies continue to recover, albeit at a modest pace. On balance, we expect the global economy to grow moderately in the coming years. This should help to partially offset the drag from the overvalued Swiss franc. Thus, following a contraction in the first quarter of 2015, economic activity in Switzerland expanded again in the second quarter. In our estimation, GDP is likely to grow by close to 1% this year. Price stability is not in doubt In the last part of my speech, I would like to present our inflation outlook. Last year, the inflation rate – as measured by the consumer price index – averaged around zero. This year, inflation has fallen well into negative territory.