Speech  Embargo 23 November 2017, 5.30 pm  High Swiss current account surplus: consequences for SNB monetary policy? University of Basel, Faculty of Business and Economics  Thomas J. Jordan Chairman of the Governing Board ∗ Swiss National Bank Basel, 23 November 2017 © Swiss National Bank, Zurich, 2017 (speech given in German)  ∗ The speaker would like to thank Thomas Nitschka and Pınar Yeşin for their support in drafting this speech. He also thanks Simone Auer, Alain Gabler, Petra Gerlach, Peter Kuster, Carlos Lenz and Alexander Perruchoud as well as SNB Language Services. Page 1/13  Introduction Switzerland has had a surplus on its current account ever since the 1980s. In simple terms this means that, in our economic exchanges with other countries, we have more receipts than expenses. In 2016, this surplus stood at around 10% of GDP – and it has even approached 15% in some earlier years. Textbook economic theory suggests that a current account surplus is a function of an undervalued currency. In order to restore balance in future years, the currency of a country running a surplus would need to appreciate, leading to a reduction in net exports. However, this contrasts with the Swiss National Bank’s (SNB) assessment that the Swiss franc has been highly valued for years, and at times even hugely overvalued. Despite a slight weakening of the exchange rate, our monetary policy thus continues to be geared towards easing the pressure on the Swiss franc and making investments in Swiss francs less attractive.

These distortions can partially be put down to the ownership structure of listed multinational companies headquartered in Switzerland, and also to the traditionally lower rates of inflation in Switzerland compared to other countries. Chart 5 illustrates the overstatement of the current account surplus based on these two distortions. The distortions shown here are calculated using internal SNB estimates. These estimates are valuable pointers to understanding and analysing Switzerland’s current account. The first distortion is attributable to Switzerland being a location for multinational companies. For the size of the country, an above-average number of multinationals – that is to say, large companies listed on the stock exchange with extensive activities throughout the world – are headquartered in Switzerland. A substantial percentage of these companies are held in free float by foreign investors. This kind of ownership structure can lead to an overstatement of the current account balance when compiling the balance of payments and international investment position according to the IMF guidelines. This is particularly the case when such foreign-controlled companies reinvest substantial portions of their earnings instead of distributing them as dividends. 6 These savings by multinational companies are allocated entirely to Switzerland although a large proportion actually belongs to foreign investors. The extent of this distortion can be seen from the red bars in chart 5. While the contribution of the red bars fluctuates considerably, on average it is firmly in positive territory and explains a substantial part of the Swiss current account surplus.