As a result, central banks today focus more than they used to on developments in the financial markets. The Swiss National Bank, too, has deepened its understanding of the markets, refined its analytical tools and strengthened its market contacts. I will say more about that later in my speech. First, I would like to talk about the expansion of the monetary policy toolkit and what that involves. In the final part of my speech, I will offer a few thoughts on the extent to which unconventional monetary policy measures have changed the interactions between monetary policy and the financial markets. Monetary policy transmission using only a single instrument In principle, monetary policy influences economic and price developments via the banking system and the financial markets, since a central bank conducts its monetary policy by using its monetary policy instruments to target certain prices on the financial markets. Monetary policy stimuli are thus transmitted via the financial markets to the economy. The choice of instrument is dictated by the monetary policy framework. In the pre-crisis era, so up to about 2007, central banks were in general agreement about what makes a good monetary policy framework. It should be simple, clear and straightforward; in practice, there was, in particular, a consensus that monetary policy should be implemented using only a single instrument. This was usually a short-term interest rate steered more or less directly by the central bank. Monetary policy had only an indirect influence on all other financial market prices, because they depended on the short-term rate.

Needless to say, we have built up the relevant capacities and necessary know-how in this area. But the changes go much deeper. In simple terms, the growing importance of the exchange rate instrument has meant that the SNB has had to catch up rapidly with the structural changes that have taken place in the foreign exchange market in recent decades, especially in relation to the introduction of electronic trading. As you probably know, transactions on the spot and foreign exchange swap markets are now largely conducted on electronic platforms. Since 2010, we have been carrying out virtually all our foreign exchange transactions on such platforms. Electronic trading has made the foreign exchange market faster and more transparent. For instance, live streaming of prices enables market participants to precisely determine the price and the market conditions before a transaction is conducted. In order to take account of these changes, we use the latest techniques to carry out our transactions and implement our trading strategies. Electronic trading also brings advantages for the ex post analysis of transactions. For example, we are able to closely monitor individual foreign exchange transactions to gain insights into their effects and adapt our approach as necessary. Page 6/8  Overall, the foreign exchange market today is much more decentralised and the market participants far more heterogeneous than before. This means that the number and variety of market contacts required in order to understand the foreign exchange market and the demand for Swiss francs has also increased.