Despite the fact that risk attitudes, as such, are positive, demand for safe investments and thus for the Swiss franc has remained particularly strong. Consequently, recent movements in the Swiss franc have been influenced not only by the divergence between the dollar and euro regions, but also by persistent safe haven flows. The discontinuation of the minimum exchange rate led to a very substantial but short-lived appreciation in the Swiss franc. The extent of this appreciation is shown in chart 3. The extreme movements in the exchange rate were accompanied by a sharp increase in volatility on the Swiss franc foreign exchange market. Since then, Swiss franc volatility has declined, although it remains high in a long-term comparison with the period prior to the financial crisis. BIS central bankers’ speeches  1  At the same time, bid-ask spreads, i.e. differences between the best purchasing and selling offers, widened substantially following the end of the minimum exchange rate. These, too, have declined in the past few months, although the bid-ask spreads remain relatively large. In trade-weighted terms, the Swiss franc is no longer at the extreme levels that prevailed immediately after the discontinuation of the minimum exchange rate. However, it is still some 12% above the level at the beginning of the year. Thus, the Swiss franc is still substantially overvalued.
Implementation and impact of negative interest Exactly six months ago, on 18 December 2014, the Swiss National Bank (SNB) decided to impose negative interest on sight deposit account balances at the SNB for the first time, setting the rate at –0.25%. When it discontinued the minimum exchange rate, it lowered the rate once again by 0.5 percentage points, to –0.75%. By imposing negative interest on sight deposits, the SNB intends to move the three-month Libor into negative territory and significantly reduce interest rates in the money and capital markets. The lower interest rate makes it much less attractive to hold Swiss francs compared to other currencies. This should lead to a weakening in the Swiss franc over time. How the negative interest rate is applied I would like to take a moment to remind you how our negative interest rate is applied. It is imposed on all sight deposit account balances of banks and other financial market participants held at the SNB exceeding a given exemption threshold. For domestic banks, the exemption threshold is 20 times the statutory minimum reserve requirement. For nonbanks and foreign-domiciled banks (which are not subject to the minimum reserve requirement), a fixed exemption threshold of at least CHF 10 million has been set. The cumulative exemption thresholds come to about CHF 300 billion. This means that, with current sight deposits amounting to some CHF 455 billion, approximately CHF 155 billion are subject to negative interest. To date, the interest due on this amount has totalled around CHF 100 million per month.