What is more, the world economy is still characterised by profound imbalances, such as the deficit in US external accounts and the lack of flexibility in the Chinese monetary system. Turning now to monetary policy, there were often considerable disparities in 2005, for instance, the progressive hikes in the rate of interest in the United States at a time when monetary policy in Europe was characterised by a waiting-game approach. Despite these potentially destabilising factors, financial markets remained relatively calm. In currency markets, the dollar picked up in the wake of tighter US monetary policy, while the yen moved only slightly against the Swiss franc. The exchange rate of the euro against the Swiss franc fluctuated within a narrow range, thereby reflecting the strong convergence of fundamentals in Switzerland and the euro area. Over the past few months, the Swiss franc has even trended downward – a decline that is hard to explain given the low rate of Swiss inflation as compared to the rest of Europe. If this trend  2  BIS Review 34/2006  were to accelerate and give rise to an excessive relaxation in monetary conditions with respect to economic developments, a normalisation of interest rates would become even more essential. Generally speaking, the capacity of financial markets to absorb shocks and to cope with imbalances is one result of globalisation and the progress in financial intermediation. In addition to stimulating goods markets, globalisation has also enlarged and deepened financial markets, and is doing so to a growing extent.
It also depends on the political environment within which a central bank operates, since markets are concerned about more than just the formal autonomy of the monetary authorities. They also pay attention to the degree of political acceptance of central bank decisions. If monetary affairs are subject to permanent political debate, this can become a hindrance to credibility. Recognising that monetary matters should be conducted in a relatively calm setting does not mean that the policies adopted by the central bank should escape all democratic controls. Nowadays this form of control is tighter than ever before. Indeed, most monetary regimes now require that the central bank report to the legislative authorities on the execution of its mandate. This is also the case in Switzerland, since article 7 of the National Bank Act requires that we present a report on the fulfilment of our tasks to the Federal Assembly each year. Despite these measures, National Bank affairs are often the focus of animated political debate. Paradoxically, these debates do not relate to monetary policy in the narrow sense of the word, but rather to other aspects of a more operational nature – such as the level of the monetary reserves or the distribution of the profits. BIS Review 34/2006  3  Allow me to give you an example.