It is only very recently that the explicit mandate of promoting price stability has been introduced in the Swiss National Bank Act. But central bank independence requires more than just an appropriate legal framework. What are the necessary elements? I see three of them. First of all, to avoid any ambiguity as to what the ultimate goal of policy really is, price stability must be clearly defined. In other words, at some point, a nominal anchor has to be set. This can be an inflation target approved by the government, or a definition of price stability adopted by the central bank. A clear definition of the central bank’s goal underpins expectations and allows an objective assessment of the implemented policy. It also protects the central bank from counterproductive bargaining concerning the appropriate direction of its policy. Secondly, monetary policy must be forward-looking. Because monetary actions affect prices only after long lags, the central bank’s policy must be pre-emptive. This implies that in certain circumstances, policy decisions taken in order to guarantee price stability in the long run may be difficult to communicate, or even unpopular. It is thus of key importance that the goal and the strategy of the monetary authorities are well understood by the market and the public. This leads me to two of the most important aspects of modern central banking: accountability and transparency. For sure, central banks have to be independent in order to fulfil their job of maintaining price stability in the long run.
But in a democratic society, each institution must be held accountable for the consequences of its policy decisions. The central bank is no exception. I am deeply convinced that its independence might be in danger if the general public perceived monetary policy as not in line with the central bank’s mandate. To guarantee their independence in the long run, central banks must therefore invest a lot of energy in communicating and explaining their decisions. Although this might appear constraining, it is in their own interest if the general public has a proper understanding of the monetary action. I also believe that transparency is not only necessary for the accountability of a central bank’s action, but that it also has its own merits: transparency reduces any uncertainty surrounding monetary policy and the future course of interest rates; it makes private planning easier and enhances overall efficiency. Transparency reinforces both the central bank’s independence and the market’s support for monetary policy. Is there any chance to survive outside monetary policy blocks? I would like to conclude these remarks by addressing the more fundamental question of the feasibility, or even desirability, of pursuing an independent monetary policy in the vicinity of a large monetary zone. Is it realistic to assume that the SNB, for example, can follow a monetary policy that differs from the one set by the ECB? Wouldn’t it be preferable to have a fixed exchange rate between the Swiss franc and the euro?