It is a fact that today, most central banks are granted significant independence. This holds also for the SNB, which, by law, is functionally, institutionally and financially independent, as well as with regard to personnel issues, from the Federal Council, the Federal Assembly and any other body. 4 There are compelling reasons for this delegation of monetary policy power to an independent central bank: It is a fact both in theory and practice that an independent central bank better fulfils its mandate, namely, ensuring price stability and thereby contributing to sustained economic developments, than a central bank that is under the influence of political interest groups. However, a further important fact in this regard is that the SNB’s independence is far from unlimited. First, our independence is not an end in itself. It applies only to the pursuit of a clearly specified mandate. This mandate is defined in the political realm. It is stipulated in article 99 of the Federal Constitution and set out in detail in the National Bank Act. 5 Second, independence goes hand in hand with accountability. With the privilege and duty of conducting an independent monetary policy comes a particular responsibility. As bearer of this responsibility, the SNB is accountable to the Federal Council, the Federal Assembly and the public for the decisions it takes, the means it chooses and the results it achieves. The precise scope of this accountability is also clearly defined in the National Bank Act. 6 Yet having a sound legal framework in place is clearly not enough.
At the same time, central banks and financial regulators became increasingly vocal in stressing the overwhelming importance of a stable financial system, and took a more active role in strengthening their regulatory frameworks, both nationally and globally. Inevitably, these substantial, unprecedented shifts in the design and operation of a key field in economic policy have raised fundamental questions and cast doubt on deeply entrenched beliefs. Based on practical experience of making monetary policy in the last few years, I will try today to dispel four Swiss monetary policy “fictions” by contrasting them with established facts about Swiss monetary policy. These facts are not necessarily new, but rather took a back seat in more benign times; it took the crisis to amply demonstrate their considerable relevance. Fiction I: Negative interest rates can’t happen First, I would like to address the belief that, because of the so-called “zero lower bound”, nominal interest rates cannot become negative. This belief has clearly been proved a fiction by current developments, with the SNB lowering its policy target rate into negative territory. 1 Unsurprisingly, the measure has sparked intense debate in the public domain. This is partially due to fears that the costs incurred by banks holding sight deposits with the SNB will, at some point, be passed on to their clients. But there is a more fundamental issue here. At first glance, negative rates violate the intuition that savings must be remunerated. However, this intuition is misleading.