Our policy was guided by monetary targets until the end of the 1990s, and only recently, like most central banks, have we shifted our focus to price stability more directly. I would like to share with you some of the lessons we have learned from that period with flexible exchange rates and, in particular, review our recent experience of living on the edge of the euro area. Living on the edge of the euro area As you can imagine, the introduction of the euro in January 1999 constituted a sort of revolution in our monetary environment. For the first time in our history, we are now surrounded by a single currency area, which also happens to be the destination of 60% of our exports. In fact, our situation, in terms of economic power, can be compared to that of the State of Massachusetts in the United States. Can you imagine the State of Massachusetts having its own currency? The natural question is: How do we come to the conclusion that monetary independence is still desirable? Indeed, given our geographical position, we, Swiss, frequently have to explain why we decided not to adopt the euro or not to peg our currency to the euro, as Denmark has done. The first question I would like to address today is therefore: What are the advantages for Switzerland of retaining its national currency, as opposed to adopting the euro? I will then look at the conditions that are necessary for successful monetary autonomy.
Prior to the decisions made in March and in the weeks that followed, the Monetary Policy and Financial Stability Committee met frequently, often at short notice. On 12 March, we decided to cut the policy rate by 0.50 percentage point. The countercyclical capital buffer requirement was reduced the day after, helping banks to absorb losses and still have the capacity to provide credit. A week later, we reduced the rate further to 0.25 percent. And at the May monetary policy meeting, we took a step further and reduced the policy rate to zero. The Committee also stated that in its current assessment of the outlook for the economy and the balance of risks, the policy rate would most likely remain at today’s level for some time ahead. With a policy rate close to zero, there is a limit to how much further it can be lowered. Other 2/4  BIS central bankers' speeches  countries have experienced that policy rates can continue to have an impact at slightly below zero, but it is uncertain how negative rates will influence the economy and financial markets, particularly in the current situation. The Committee stated at the monetary policy meeting in May that it is now of particular importance to ensure well-functioning financial markets. The Committee does not envisage making further policy rate cuts. Low interest rates cannot prevent a severe downturn, but can help dampen the decline in activity.