Instead, the SNB’s main concern is to conduct a monetary policy that serves the interests of the country as a whole. Our monetary policy operations have a direct impact on the SNB’s balance sheet, meaning that substantial losses may occur in individual years. Significantly,  2  BIS central bankers’ speeches  however, in the long term, our financial results should be positive, thanks to our monopoly on creating banknotes and sight deposits, which ensures low funding costs. The Swiss franc since the discontinuation of the minimum exchange rate Our two-pronged monetary policy is proving effective in reducing the relative attractiveness of the Swiss franc. After the sharp appreciation immediately following the discontinuation of the minimum exchange rate, the franc has weakened steadily against the euro, despite intermittent bouts of heightened financial market volatility during the summer. However, the Swiss franc remains significantly overvalued. For example, the real effective exchange rate – the Swiss franc’s exchange rate against a basket of currencies of our main trading partners – is still around 15% above its long-term average, compared to less than 10% at the end of 2014. The situation on the foreign exchange market has not yet normalised. Chart 3 shows that private capital outflows, which have traditionally balanced Switzerland’s structural current account surpluses, have turned into net inflows since the global financial crisis. Changing investor preferences are behind this reversal of capital flows. While global economic conditions have improved, substantial uncertainty remains, causing some investors to seek the relative safety of the Swiss franc.

By lowering the interest rate on sight deposits into negative territory, the SNB restored the traditional interest rate differential to more normal levels, as illustrated by the orange area in the chart. The SNB’s willingness to intervene in foreign exchange markets A higher interest rate differential reduces the relative attractiveness of the Swiss franc. However, financial markets may be exposed to a sudden increase in volatility, which could lead to a sharp rise in the demand for Swiss francs. This is where our willingness to intervene in the foreign exchange market plays a crucial role in stabilising the markets. For example, this summer, when the Greek government announced a referendum on the international bailout programme, we intervened in the forex market at a time of great market volatility and global uncertainty. This willingness to intervene in the forex market as required is a key pillar of our monetary policy. The size of the SNB’s balance sheet reflects our monetary policy measures. One consequence of a larger balance sheet is larger fluctuations in the financial results. In the first three quarters of this year, the SNB incurred a provisional loss of CHF 34 billion, predominantly reflecting valuation effects following the discontinuation of the minimum exchange rate. This is shown in chart 2. It is still too early to draw conclusions for the 2015 year-end result, particularly in the current volatile international environment. Let me be clear, however: It is not the purpose of the SNB to generate and distribute profits.