7  All speeches are available online at www.bankofengland.co.uk/news/speeches and @BoE_PressOffice  7  Chart 5 Interest rate expectations track actual interest rates9  Given the long and painful recovery from the financial crisis and the fall in house prices, expectations of future income and of future house prices were depressed. Consumer confidence hit an all-time low after the GFC and remained subdued until 2014. Expectations of future interest rates may also have been low; however to the extent that the low risk free rate in the period was associated with a recession, this may not have had an upward effect on price. One would expect these factors to have waned following the economic expansion beginning in 2013, though real pay growth did not start to recover until some years later. Brexit uncertainty following the referendum result in 2016 is likely to have had a further general dampening effect on expectations. Moreover, as well as changing the expectation of future economic prospects, the financial crisis and the recession and unemployment may well have increased household risk aversion. Psychological scarring following crises can cause perceptions of risk to become overstated, and lead households to prioritise balance sheet repair in response10. Miles and Monro, “UK house prices and three decades of decline in the risk-free real interest rate”, forthcoming 10 For a more detailed discussion, see Haldane, A.
Adoption of the initiative would represent a tectonic shift in our monetary and economic system, which has developed over a period of many years. Furthermore, the uncertainty in the transition phase would be enormous. The initiative is aimed at ensuring financial stability. This is a noble goal and one which the SNB shares. But there are far better ways of achieving this than sovereign money. The initiative’s goal of fully nationalising money creation is flawed and would hurt the Swiss economy as a whole. The idea of ‘debt-free’ payments is dangerous: The initiative would encumber the SNB with added responsibilities, which would inevitably expose it to a higher level of political influence. There is a high risk that this could lead to excessive inflation. The legal and institutional framework in which the SNB has hitherto operated has stood the test of time. It ensures a fair balance of independence and democratic control. Today the SNB is protected from political influence and this enables it to pursue an effective monetary policy in the interests of the country as a whole. Given all these considerations, sovereign money is an unnecessary and dangerous experiment, which would inflict great damage on our country. Thank you for your attention. Page 8/8