After all, most businesses do not work with margins that can absorb such extreme exchange rate fluctuations, in terms of both speed and level. The Swiss economy is very open and dependent on exports. Every second Swiss franc is earned abroad. The massive overvaluation of our currency this summer carried with it the risk of a recession and of deflationary developments. This is why  14  It is worth noting that this long run average is a purely backward-looking statistical concept and not a forwardlooking or equilibrium concept. We use it throughout as a statistical yardstick. The SNB does not endorse a specific equilibrium exchange rate level as the notion of equilibrium is model-dependent and thus not uniquely defined. Every model we know of concludes, however, that at CHF 1.20 per euro, the Swiss franc remains high. 15  This is an approximation of the real effective exchange rate, assuming constant weights and inflation differentials. 6  BIS central bankers’ speeches  the SNB concluded that it had to act in order to protect the economy and safeguard price stability. On 3 August, the SNB announced that it would be aiming for a three-month Libor as close to zero as possible. This was to take immediate effect. It would also expand banks’ sight deposits from their then level of around CHF 30 billion to CHF 80 billion.
Regulatory cooperation in Asia These initiatives are being supplemented in Asia by regional cooperation on both a bilateral and multilateral basis. There have been a number of factors driving this. The aftermath of the Mexican crisis in January 1995, which saw speculative attacks on a number of Asian currencies, encouraged the view that there was a need for countries in the region to strengthen their defences in this area. We have thus seen the arrangement of an interlocking series of bilateral repo agreements using US Treasuries between Asian central banks, including the Hong Kong Monetary Authority. These agreements are intended to provide additional liquidity for exchange rate stability purposes. More generally, there has also perhaps been a feeling among the Asian countries that the existing arrangements for central bank cooperation were somewhat “euro-centric” and did not take adequate account of the growing importance of the Asian region where over 40% of the world’s foreign currency reserves are now held. This feeling has to some extent been addressed by the more participative approach now being adopted by the Basle Committee and the BIS. But there is nonetheless a view that greater regional cooperation among Asian central banks is both necessary and desirable. This has been summed up in the concept of an “Asian BIS”, though this is somewhat misleading as there are no immediate plans to move towards the BIS Review 55/1997  -4-  institutional structure which the name would imply.