Since every country has its own set of idiosyncrasies, I can obviously not speak for all central banks. I will therefore focus on Switzerland and the SNB. As in other areas of the economy, however, developments abroad affect Switzerland and thus the SNB via the global financial markets. This just goes to show how important it is for us that the right direction for central banks is also set abroad. Role of monetary policy largely unchanged I would now like to say a few words about the central banks’ role in monetary policy. In my opinion, the core mandate should remain unchanged. The SNB’s monetary policy is still credible. The SNB must, as an independent central bank, ensure price stability while taking due account of economic developments. The National Bank Act grants us substantial flexibility in implementing this mandate, and this has made a major contribution to retaining our freedom of action, even under extreme conditions. When the zero bound was reached, we were able to use new instruments swiftly and rigorously even though this was associated with considerable balance sheet risks. As a result, we successfully fulfilled our mandate and ensured price stability. How else, for instance, could we have credibly set and enforced the minimum exchange rate, if the law had imposed restrictions on the SNB with regard to its balance sheet? The key importance of price stability was uncontested for a long time. Now, however, the relatively old discussion about the optimal goal of monetary policy has been fuelled by the crisis.
Consequently, it is clear – and well-established historically – that central banks make an important contribution to financial stability. In fact, several central banks were founded specifically for this purpose. The idea was that the central bank should serve as the lender of last resort, thereby protecting the banking system from collapse. In Switzerland, the SNB has always been the lender of last resort. In the revision of the NBA carried out ten years ago, the SNB received for the first time an explicit mandate to contribute to financial stability. The term “contribute” expresses the fact that other state institutions also have an influence on financial stability and that, in addition, this stability can never be absolutely guaranteed. Until recently, the SNB had two options for its contribution to financial stability, in addition to the monetary policy toolkit, which was mainly based on interest rates. The first was to rely on the persuasive power of its sound arguments and hope that banks and other financial market participants would draw the right conclusions from these, so that a crisis did not arise. The most important example for a persuasive approach is our annual Financial Stability Report. Since 2003, this report has conducted an assessment of the stability of the banking industry, highlighted tensions and imbalances, and made recommendations. The second option was for the SNB to provide a bank facing a crisis with emergency liquidity assistance, if this was necessary for the functioning of the financial system.