Besides its use as a means of payment that promotes confidence, central bank money also requires a reliable settlement of payments. A settlement mechanism is required that replicates 1 2  3  In addition to commercial banks, other parties – such as the Confederation and various financial institutions – have access to central bank book money. For the sake of simplicity, these are disregarded here. The SNB provides counterparties with interest-free liquidity during the day (via the intraday facility) to facilitate the settlement of payment transactions. In order to bridge unexpected liquidity bottlenecks, the SNB offers a liquidity-shortage financing facility, whereby at least 110% of the liquidity drawn must be backed by collateral eligible for SNB repos. It is crucial that payments important for the system as a whole be settled through an account with the central bank. Payments settled in a commercial bank account entail credit risk. Only payment settlement in an account with the central bank – that is, in central bank money – is not subject to credit risk, since the central bank is the only institution that cannot go bankrupt. Page 3/11  the delivery of cash in digital form for commercial banks, i.e. a real-time transfer that is final and irrevocable. One such payment system was introduced around the world in the 1980s – the real-time gross settlement (RTGS) system. Switzerland was a pioneer in its development of the Swiss Interbank Clearing (SIC) system in 1987.
If confirmed, this should serve to improve confidence and preclude the more negative economic scenarios, although it will take time for the attendant effects on activity to become apparent. 2  As regards the euro area inflation outlook, the ECB forecasts a very modest rise this year of 0.3%, with a recovery to 1% in 2021 and 1.3% in 2022. However, these values are well short of the medium-term price stability target, defined as inflation rates below, but close to, 2% over the medium term. The latest flash estimate for the euro area Harmonised Index of Consumer Prices, referring to October, shows annual inflation of -0.3%, weighed down by the recent appreciation of the euro, low energy and services prices, and the temporary impact of the VAT cut in Germany. Core inflation held at an all-time low of 0.2% in October, unchanged on September. It is worth noting that 35% of the headline inflation components recorded negative growth rates, and around 70% of the components grew at rates of less than 1%. Consumer expectations have held on a downward path since March, while the metric derived from financial markets (five-year swaps) declined slightly to 1.16%. Meanwhile, the long-term expectations of the Survey of Professional Forecasters held stable at around 1.7%. The situation I have just described is, therefore, one of a fragile and uncertain recovery in the euro area, in which some of the downside risks for our baseline scenario, which were identified just a few months ago, are materialising.