Equation 3 illustrates the relationship between the current account balance as a flow and the net international investment position as a stock. The current account balance in a particular year corresponds to the change in the net international investment position in that year, adjusted for other influencing variables. Or, put another way, the net international investment position consists of the accumulated current account balances over the period. The other influencing variables, besides the current account balance, which can affect the net international investment position include exchange rate movements as well as changes in domestic and foreign asset prices. An appreciation of the local currency usually reduces the net international investment position, irrespective of the current account balance, as foreign assets are mainly denominated in foreign currency, and foreign liabilities in local currency. Since such valuation effects now play a major role, the current account does not offer a complete picture of developments in the net international investment position. Switzerland’s current account After this quick refresher of the relevant interrelationships concerning the current account, let’s look at the development of the current account in Switzerland from a slightly more longterm perspective. Chart 1 shows the annual balances on the current account in Switzerland during the period 1960–2016 as a share of GDP. The current account has been in surplus since the 1980s. The 3 4  Prior to the financial crisis, Switzerland’s current account balance had long been dominated by net investment income. In statistics, deviations from this equation cannot be avoided.
If we are to fulfil our legal mandate to ensure price stability while taking due account of the development of the economy, we have to implement expansionary measures in such circumstances, in order to counter the strong franc. In the current environment of very low interest rates worldwide, it is not possible to steer monetary conditions exclusively via the interest rate channel. In addition to the negative interest rate (–0.75%), the SNB influences monetary conditions by intervening directly on the foreign exchange market as necessary. The goal of this policy is to reduce pressure on the currency and to make Swiss franc investments less attractive. Our foreign exchange market interventions do not amount to a mercantilist policy at the expense of Switzerland’s trading partners or a beggar-thy-neighbour strategy; rather, this policy provides the SNB with a necessary instrument for ensuring price stability and for fulfilling its mandate. What would happen if we were to interpret the current account surplus as an indicator of the Swiss franc tending to be too weak, or of the economy growing strongly, without taking these particularly Swiss circumstances into account? We would misjudge the risks to price stability and economic development, with which we have repeatedly been confronted in the recent past. And we would not make any appreciable reduction to the current account surplus, even if the franc were stronger. Allow me to illustrate this point with a simple chart.