Within minutes, the exchange rate exceeded the CHF 1.20 mark. Seen from the outside, this may have created the impression that a minimum exchange rate can simply be generated by pressing a button and that such an exchange rate is a normal monetary policy measure which is straightforward to implement. That is far from being the case. A minimum exchange rate is an extreme measure, only to be introduced in a situation of massive overvaluation, with the aim of averting the worst developments. It is neither a panacea capable of solving all the problems facing the Swiss economy, nor can it simply be implemented for any desired level, free of any risk. On the contrary. A minimum exchange rate can only be successfully implemented if there is a clear economic justification for its introduction, such as a massive overvaluation resulting from adverse developments on the foreign exchange market. Within the framework of a system of flexible exchange rates, it is also important that it be internationally accepted, and that it is not seen as a competitive depreciation. Finally, a vital element in the successful implementation of such an exchange rate is the central bank’s credibility, in other words, the belief that the central bank will indeed defend the minimum exchange rate, if need be. Financial markets are constantly changing their assessment of risks. A situation may also occur in which the market decides to test the defence of the minimum exchange rate.
The explanatory power of fundamental factors in explaining the developments in residential real estate prices is decreasing steadily, while the volume of mortgage loans in comparison to GDP has never been so high. Should these imbalances increase further, considerable risks to financial stability could emerge. Given this situation, the SNB has strongly advocated the introduction of a countercyclical capital buffer in Switzerland. This buffer would not be a permanent increase in equity requirements for banks. It is only to be activated temporarily in the event of excessive growth in domestic mortgage lending. As soon as lending growth weakens again, the buffer can be deactivated. An instrument of this kind was examined in detail last year by a working group headed by the Federal Department of Finance, to which both FINMA and the SNB also belonged. The group proposed that the buffer be introduced rapidly so that a suitable instrument would be in place, in case the imbalances in the Swiss mortgage and real estate market increased further. Concluding remarks Ladies and Gentlemen, as you will have gathered from my remarks today, the challenges facing the SNB have not diminished. Consequently, it is all the more important that we are able to devote our complete attention to our tasks, now and in the future. The SNB’s monetary policy decisions are directed purely and solely at fulfilling its statutory mandate. It is our responsibility to ensure price stability.