impose a negative interest rate on banks’ sight deposits held at the SNB if the deposits exceeded a certain exemption threshold. On 15 January 2015, the SNB discontinued the minimum exchange rate relative to the euro and simultaneously lowered the negative interest rate due to take effect on 22 January to −0.75%. Page 6/13  The role of the interest rate on banks’ sight deposits at the SNB In the years leading up to the Global Financial Crisis a so-called structural liquidity deficit prevailed in the banking systems of many countries, including Switzerland. Since the SNB did not pay interest on banks’ sight deposits at the SNB, banks held as little excess liquidity as possible in the form of sight deposits in an environment of positive interest rates. During this period, the SNB steered money market interest rates via the price and quantity of its daily money market operations, which were conducted in the secured segment of the money market in the form of repo transactions. For instance, if the SNB wished to induce a decline in money market rates, it provided more liquidity and reduced its repo rate. This setup changed with the Global Financial Crisis. Many central banks initially responded to the unfolding crisis by lowering policy rates. Subsequently, they launched asset purchase programmes (‘quantitative easing’) or – as was the case with the SNB – conducted foreign exchange market interventions.
The CRF, which was set up at the end of March 2020, and the loan guarantees provided by the Swiss federal government have together contributed significantly towards ensuring the continued supply of credit and liquidity to small and medium-sized enterprises. One of the instruments that has been reactivated is US dollar swap lines between central banks. These swap lines, which were established in late 2007 during the Global Financial Crisis, were used to counter a sharp rise in US dollar funding costs. 1 Finally, the SNB resumed monetary policy repo transactions in the Swiss  1  US dollar swap lines have been operational since 2007. From spring 2012 until early March 2020, there was no demand in the US dollar auctions conducted by the SNB. Page 2/13  franc money market, after a hiatus of eight years, with the aim of keeping secured short-term Swiss franc money market interest rates close to the SNB policy rate. The focus of today’s speech relates to this last point – to the role of the money market in the implementation of our monetary policy. Why did we choose to shine a spotlight on the money market? The role of the money market For one thing, examining the workings of the money market is in keeping with the original aim of this event.