As a consequence, the return on capital is relatively low and wages are comparatively high, particularly so for unskilled labour. We thus tend to specialize in capital intensive and high-value added activities. External shocks tend to impact on us in a way that is not quite the  BIS Review 72/2004  1  same as on the rest of Europe. Moreover, we also have to cope with home-brewed shocks. It is for these reasons that we are eager to keep an autonomous monetary policy. Furthermore, if markets became convinced that in the future the SNB’s actions would simply mimic those of the ECB, they would rapidly force a convergence between Swiss nominal interest rates and those of the eurozone. Our real interest rates might remain lower for a while, given our relatively large supply of physical capital, but a tendency towards equalization would nonetheless set in. What this might mean for us is a higher rate of inflation for some time, together with a collapse in asset prices and in domestic gross capital formation. A mixture of higher interest rates and high, sticky wages would be very harmful to our economy. The third fear that was sometimes expressed, although here I must say I was rather sceptical myself, was that the euro would gradually render the Swiss franc obsolete. With many of our trading firms billing and paying their suppliers in euros, there might be a tendency for them to adopt the euro more generally for their accounting as well as for their domestic transactions.

Central bank liquidity provision This brings me to the second factor, namely central bank liquidity provision, which influences the effective pass-through of monetary policy decisions to money market rates and financing conditions more broadly. The relation between excess liquidity and overnight money market rate dispersion has also changed since the global financial crisis. Prior to 2015, higher levels of excess liquidity tended to lower the dispersion of money market rates (Slide 6). After 2015, increases in dispersion also occurred in periods of ample and rising excess liquidity. https://www.ecb.europa.eu/press/key/date/2020/html/ecb.sp201123~8d9573b1b1.en.html  3/7  24/11/2020  Shifting tides in euro area money markets: from the global financial crisis to the COVID-19 pandemic  There are several reasons for this changing relationship. Prior to 2015, central bank liquidity provision and the associated Eurosystem balance sheet expansion were driven by the need to restore an impaired monetary policy transmission mechanism, caused by heightened market stress during the financial and sovereign debt crises. During the global financial crisis, when the unsecured interbank market came under stress, banks turned to the central bank to obtain liquidity. The Eurosystem essentially assumed the liquidity-providing role of the private market. During the sovereign debt crisis in the euro area, banks once again increased their demand for central bank liquidity. The provision of central bank liquidity also stimulated the supply of liquidity in the private market, especially to banks located in the periphery. [16] The optimal design of central bank liquidity policies is an important research question, which is examined in the conference paper by Robatto (2020).