In contrast to, say, investment funds, we are not faced with the prospect of investors demanding the return of their shares when market turbulence sets in, and forcing a quick asset sale. On the contrary, when volatility increases, our investment activity can exert a certain stabilising influence on prices in these markets. This is due to rebalancing: when large price declines in individual asset classes cause their share within our portfolio to fall substantially below the strategic weighting for that asset class, we purchase assets in order to re-establish the desired share. Foreign exchange reserve investment and monetary policy in a low interest rate environment In addition to the specific challenges posed by investing high foreign exchange reserves, there are also challenges that affect virtually all investors. I am thinking first and foremost of the globally low interest rate environment. As slide 10 shows, the market volume of  3  6  IMF. 2015. Market Liquidity – Resilient or Fleeting? Global Financial Stability Report, October 2015. BIS central bankers’ speeches  negative-yielding government bonds has risen substantially since 2014. It now amounts to around USD 7 trillion, representing nearly 25% of the global market. 4 Today’s environment of low, or even negative, interest rates has historical antecedents. Since as far back as the 1980s, we have been observing a decline in the level of interest rates, as we can see from slide 11. 5 This decline in interest rates is due to a number of structural factors, such as demographic changes and lower productivity growth.

The European Central Bank, meanwhile, indicated towards the end of the year that further extensive monetary policy easing measures would be necessary in the euro area. Against this background, the US dollar began to appreciate and the euro came under strong downward pressure. Because of the minimum exchange rate, the Swiss franc also depreciated against the US dollar. This caused pressure on the minimum exchange rate against the euro to rise very substantially and made increasingly large interventions necessary. Instead of broad-based Swiss franc strength, we were faced – to an ever greater degree – with pronounced euro weakness. In this fundamentally changed environment, the minimum exchange rate was no longer sustainable. Had the SNB attempted to maintain the minimum exchange rate, it would have lost control of its balance sheet and, with it, monetary conditions in Switzerland, because of the increasing magnitude of the interventions. Consequently, on 15 January 2015, the SNB discontinued the minimum exchange rate. To cushion the upward pressure, the SNB simultaneously lowered the interest rate on sight deposits to –0.75%. It also stressed that it was willing to intervene in the foreign exchange market as necessary. These were no empty words, as can be seen from our foreign currency purchases, which amounted to more than CHF 86 billion last year. A large portion of these occurred during the period immediately before and after the discontinuation of the minimum exchange rate. The Swiss franc initially shot up after the discontinuation, but then stabilised. Since May 2015, it has weakened again slightly.