Nevertheless, it is not desirable, even for a central bank, to experience a long period of negative equity as this could generate doubts about its credibility. 2 Switzerland: a very special case Although the recent crises have been global in nature, every country has had to define policy in response to the specific circumstances that affect it. The Swiss case is very special as our country still has the leeway to undertake fiscal manoeuvres. Instead, we are confronted by another major challenge, the exceptional power of our currency. As we all know, the increased uncertainty and extreme risk aversion, which arose as a result, drove the Swiss  2  Cf. Jordan (2011) for more details on this topic. BIS central bankers’ speeches  3  franc to an all-time high in early August of 2011, posing a threat to the economy and carrying the risk of severe deflationary developments. As I already mentioned, fiscal policy remained a conceivable means of addressing this problem as our country’s debt-to-GDP ratio is less than 40% and its public sector budget has been in surplus for the last six years. It was not, however, as the massively overvalued Swiss franc first threatened demand for Swiss exports and Switzerland is, of course, not in a position to stimulate the entire world economy. In this particular case, it was inappropriate to resort to fiscal policy. It was therefore up to the SNB to take action. It implemented measures aimed at a substantial and sustained weakening of the Swiss franc.
So the challenge of designing an international monetary system that could prevent the emergence of “too high to last” imbalances remains. The financial crisis has reminded us all of the importance of solving this problem. Sudoku for economists shows that it is essentially a political and not a technical problem: how can we ensure that the economic policy frameworks of countries are consistent with each other? At present there is no political mechanism for achieving that consistency. Finding such a mechanism is urgent. Having narrowed somewhat at the height of the crisis, the imbalances are now widening again. There is a risk that countries will, out of frustration, impose unilateral  BIS Review 4/2010  3  and ultimately self-defeating protectionist responses. Because the number of countries involved in the international trading system is now so large, and the countries so diverse, the idea of another Bretton Woods conference is wholly impractical. The IMF, despite the legitimacy bestowed by its membership of 186 countries, is too unwieldy without reform. The G7 omits some of the key players, such as China. Of more immediate promise is the G20 group of countries, which produces almost 90% of world GDP. Last year, under the UK Presidency, the G20 agreed to a new policy coordination framework which commits member countries to a process, using the expertise of the IMF, of assessing the consistency of their national policies. G20 Heads of Government will meet twice this year, in June and November, to discuss progress.