The Geithner plan, for example, calls for a range of +/–4%; others say it should be even narrower.10 While these ranges serve as a reference for locomotive countries that should contribute to global absorption, this argument falls flat when a country of 8 million people is asked to adjust and take on such a role. Furthermore, these ranges are arbitrarily defined and are not considered to be flexible over time.11 On a more technical level, it must be borne in mind that current account balances are not free from accounting biases. This is especially true for countries with large net investment assets and large portfolio investments in equity. For these countries – Switzerland included – the current account is overstated because of accounting procedures for the balance of payments. The time-varying bias, which in some years has been estimated at more than 5% of Swiss GDP, stems from the fact that income from foreign direct investment is fully attributed to domestic residents, rather than its corresponding proportion of domestic and foreign shareholders. In short, this accounting bias overstates our external wealth. A further statistical bias that overstates the Swiss current account surplus is cross-border shopping. It is unclear how current account ranges deal with such measurement issues.12 Besides country size and accounting issues, from the investment and savings perspective, too, there are good reasons to run a current account surplus that exceeds some predetermined range. An aging industrialized society, like Switzerland, needs to raise its national savings, perhaps by more than it invests domestically.
Between early July and early August alone, the Swiss franc appreciated by roughly 20%.1 With interest rates close to zero and inflation forecasts signaling deflationary risks, the minimum exchange rate helped us avoid a dangerous tightening of monetary conditions, in a situation where we had exhausted the options available under conventional monetary policy. It also provided the foreign exchange market with clear guidance at a time of enormous uncertainty. The rationale for the introduction of the minimum exchange rate is internationally acknowledged. As I have seen over the last two years, particularly central banks and the IMF understand the difficult situation facing Switzerland in 2011. They also recognize that we set the minimum exchange rate at a level where the Swiss franc remains highly valued even today. Over the last few years, exchange rate tensions between the major economies have flared up. In this context, some observers have criticized central banks for influencing exchange rates, either directly through foreign currency purchases, or indirectly through additional monetary easing measures such as the purchase of securities. It is claimed that these types of asset purchases generate spillover effects or constitute a beggar-thy-neighbor policy.2 In recent weeks, it has been suggested that capital flows have again become highly volatile  1  Based on daily data. 2  There are several event studies which show that asset purchases by the Federal Reserve and the Bank of England weakened their domestic currencies.