the major advanced economies. the question is : to what extent, if at all, can emerging markets insulate themselves from external shocks? the well - known ‘ trilemma ’ tells us that, with free capital mobility, independent monetary policies are possible only if exchange rates are floating. however, the sheer scale of financial globalisation in recent years has led to a rethinking of the trilemma. helene rey2, for example, has posited the existence of a global financial cycle that is strongly related to monetary conditions in the us and to changes in uncertainty and risk aversion. it is argued that, because credit cycles and capital flows respond to global factors, they may be inappropriate for the prevailing cyclical conditions of many economies. this implies that, for some countries, the global cycle can lead to excessive credit growth when the economy is booming and excessive contraction during a downturn. in other words, it is conditions in the advanced economies that determine domestic financial conditions in the smaller economies, and not domestic policy rates. rey, h. 2015. ‘ dilemma, not trilemma : the global financial cycle and monetary policy independence ’. national bureau of economic research working paper no. 21162. page 7 of 11 as obstfeld, ostry, and qureshi3 have pointed out, there are a number of reasons why we would expect monetary policy to be constrained where financial integration pertains. for example, the substitutability between domestic and external financing could limit the effectiveness of domestic policy interest - rate changes on credit extension and asset prices. they also note that, even if we observe divergences between short - term rates as an indicator of insulation, there is likely to be greater comovement of longer - term rates. much will then depend on the extent to which longterm rates influence real variables. for rey, therefore, the trilemma does not exist. rather, it is a dilemma – or what she calls ‘ an irreconcilable duo ’. that is : independent monetary policies are possible if, and only if, the capital account is managed, directly or indirectly, via macroprudential policies. these could include capital controls if macroprudential policies are insufficient. in other words : flexible exchange rates do not ensure independent monetary policies when capital is highly mobile. this is a rather significant conclusion for emerging markets as it means that, under conditions of free capital mobility, monetary - policy independence

, the swiss franc is currently significantly overvalued. monetary policy is geared towards this challenging set of circumstances, and is guided by the snb's willingness to take an active role in the foreign exchange market and apply negative interest rates. this twopronged approach is designed to ease the upward pressure on the swiss franc. however, in the current climate there is, regrettably, no easy solution that would absorb all external disruptions. we must accept these challenging economic conditions for the time being. the snb is aware that many companies find themselves in a difficult situation. and it has great respect for the challenges facing switzerland's businesses and their staff. bis central bankers ’ speeches