Jean-Pierre Danthine: Swiss monetary policy and Target2-Securities Introductory remarks by Mr Jean-Pierre Danthine, Member of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 16 December 2010. *  *  *  My remarks today will focus on three topics. I will start by looking at the situation on the international financial markets. I will then speak about the SNB’s own financial market activities in connection with the two core tasks of monetary policy implementation and foreign exchange reserves management. Finally, I would like to briefly discuss the planned panEuropean securities settlement system, Target2-Securities. International financial markets The situation on the international financial markets reflects the gradual global economic recovery. At the same time, these markets continue to be affected by the fallout from the financial crisis and by doubts as to whether the current global economic recovery will be robust enough to reduce the existing financial imbalances. On the stock markets, volatility has trended downwards over the past half-year, but has remained high. Shares and corporate bonds have benefited from investors’ growing risk appetite, the ongoing expansionary monetary conditions and good corporate results. On the bond markets, by contrast, uncertainty has, if anything, grown. With the global economic recovery, yields on long-term government bonds have picked up from their low levels. In Europe risk premia for heavily indebted sovereigns have risen markedly. The imbalance in many government budgets has taken problematic proportions.

Wide-ranging cuts have been announced in the affected countries, and international rescue packages have been put together, first for Greece and latterly also for Ireland, in order to prevent the situation from escalating. The markets will, however, be monitoring the effectiveness of the announced cuts and support measures very closely. The problem of sovereign indebtedness in Europe remains a source of considerable uncertainty. A high level of uncertainty also remains on the foreign exchange markets. The continuing high volatility is coupled with strongly divergent exchange rate developments. Over the last few years, a number of currencies have appreciated substantially against the two major world currencies: the euro and the US dollar (cf. chart 1). These currency shifts do not just negatively affect the export capability of the countries whose currencies have appreciated; they also have a heavy impact in monetary terms. This is because, in order to keep appreciation in check, some countries have intervened in the foreign exchange markets, with some others even resorting to restrictions on the movement of capital flows. The result has been a global rise in foreign exchange reserves. Indeed, they have almost doubled in the past four years (cf. chart 2). The high level of foreign exchange reserves ultimately reflects substantial global economic imbalances. As we know, the Swiss franc also appreciated substantially in the wake of the financial crisis. Looking at how the Swiss franc’s real and trade-weighted external value has changed over the long term (cf.