Just how difficult that would be – and how far sovereign money would complicate our work – can be illustrated by taking the example of our monetary policy during the last financial crisis. Over a very short space of time, we created a vast amount of money; initially to ensure liquidity in the banking system, and thereafter to counter the massive upward pressure on the Swiss franc. This led to a significant expansion of our balance sheet. How would we have proceeded in a sovereign money system? We would probably not have reacted so decisively given the difficulty of reducing liquidity once it has been created in a sovereign money system, which can therefore lead to higher inflation further down the line. A weaker monetary policy reaction would have exacerbated the negative consequences of the crisis for the real economy. Quite apart from that, it is doubtful whether we would even have been able, in a sovereign money system, to react as we did because the initiative limits the number of tools we would 2  As regards the SNB’s shift from monetary targeting to interest rate targeting, cf. Meyer, Hans, On monetary policy in the new year, speech held at the University of St. Gallen, St. Gallen, 20 January 2000. Page 6/8  have available. Interventions in the foreign exchange market, which have played a central role in combating the overvaluation of the Swiss franc, would not actually be allowed under a sovereign money system.
Philipp Hildebrand: The Swiss National Bank’s view of international financial markets against the background of trends in the United States Introductory remarks by Philipp Hildebrand, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 12 December 2003. *  *  *  The past year was a turbulent one for the international financial markets, which were essentially influenced by trends in the US. During the first half of 2003, market developments were shaped by economic and deflation fears as well as by the war in Iraq. In this environment, equity markets reached an annual low in March. In June, bond market yields fell to their lowest level. The second half of the year saw an economic recovery in the US, which is now spreading to other economic regions as well. Capital markets Long-term yields on Swiss paper rose by approximately 60 basis points from their low in June to roughly 2.7%, approximately tracking yields in the euro area. In both cases, yields followed the US market very closely, albeit with modest fluctuations (see graph 1). Under the present economic conditions, the interest rate environment in Switzerland is still viewed as attractive by consumers. The high level of new fixed-rate mortgages is an indication of this sentiment. The higher Swiss yields reflect the improved economic outlook and not inflation expectations, which are modest given that there is still pronounced underutilisation of capacities. In contrast to capital market yields, money market yields were decidedly stable.