The task is to diversify a large foreign currency portfolio according to the criteria of liquidity, security and return. Even in these extreme circumstances, the SNB’s investment policy and process have proved resilient. The investment skills we have developed over the past 15 years, together with our flexibility regarding investment categories allow for the smooth absorption even of large inflows from foreign exchange purchases. The principles upon which our investment policy is based have proved their worth. The idea of a sovereign wealth fund for better management of the SNB’s currency reserves has attracted some public interest. However, a sovereign wealth fund would not facilitate monetary policy with regard to the enforcement of the minimum exchange rate. Moreover, advocates of a sovereign wealth fund often have unrealistically high expectations, not least as regards returns. But the most important point is that the current size and composition of the central bank balance sheet are a direct reflection of monetary policy. The SNB’s investment requirements are derived directly from money creation and not from other revenue sources. If limitations were placed on the SNB balance sheet, its room for manoeuvre in the monetary policy domain would be restricted. Due to the accumulation of currency reserves that have resulted from monetary policy measures, there are substantial risks weighing on the SNB balance sheet. Consequently, fluctuations in value may be much greater in future than they have been in the past. In addition, the relationship between equity and currency reserves has worsened.

The transfer of risks related with the debt is prohibited in Islamic finance. Therefore speculative transactions such as derivative are nonexistent. Transferring the risk related with the debt and speculative financial activities could cause unnecessary booming of the financial transaction volume well above the size of the real economy. Moreover, linking credit supply to growth rate of the economic activity, Islamic finance acts as a natural hedging scheme. In other words, financing extended by means of Islamic institutions can be used only with the real economic activity, and thereby, help restrict excessive credit boom. Credit is mainly extended for the purchasing of the real goods and services. In Islamic finance, Islamic financial institutions should own and possess the real goods and services and the buyers of the real goods and services should want to take delivery. Therefore, stakeholders share profits in good times, and losses in bad times. Distinguished Guests, There is ample room to improve Islamic financial system, more specifically on regulatory and supervisory side. While the high growth rate of the Islamic financial institutions is expected to continue in the coming years, they maintain certain market risks such as reputation and liquidity risk. Liquidity management is difficult under Islamic finance rules as practical instruments in accessing liquidity are limited. However, Islamic financial institutions, being aware of the limits in liquidity management, sustain higher liquidity ratios compared to conventional banks. Similar case is valid for their capital ratios.