or sterling, are comparable, while currency risks are significantly lower. consequently, and also because another important reserve currency was available in the form of the euro, we have substantially reduced our share of usd investments over the past few years. along with the expansion in the range of permissible bond classes and the addition of shares, the risk / return profile of our foreign exchange reserves has improved substantially. this has helped to ensure that results on foreign exchange reserves have remained positive for the past ten years. naturally, part of the background to this development has been the favourable interest rate environment that has prevailed since the mid1990s. our analysis of the overall risk for all investments shows that the traditional risk factors such as the gold price and the dollar exchange rate continue to dominate. gold poses the most substantial contribution to risk. by way of illustration : the gold price in terms of swiss francs has fluctuated by over 10 % in about half of the years that have elapsed since 1980. in terms of the snb's annual result, this means that gold can be expected to contribute more than + / - chf 3 billion to the result every second year. by comparison, the fluctuations in the value of foreign exchange reserves are more moderate. the national bank holds 1, 290 tonnes of gold reserves. this means that, as the price of gold changes, the composition of the currency reserves changes in value terms – as does the risk profile of the currency reserves. in other words, a sizeable advance in the price of gold led to a substantial increase in the share of gold and thus also a significant rise in the risk that earnings would fluctuate. at the same time, our gold reserves represent a very special asset which, from a historical point of view, is likely to provide a crucial protective function in periods of extreme crisis. what conclusions can we draw from these considerations? the 2004 revision of the national bank act gave the snb more leeway in its investment policy. since then, we have made use of this leeway within the bounds set by monetary policy, at least with respect to foreign exchange reserves. an essential prerequisite was – and remains – a risk management operation which is committed to bestpractice methods and takes full account of the special features of a central bank in its considerations. the requirements of monetary policy will continue to have a strong impact on snb investment policy in the future. the room for further improvements in the risk / return ratio is limited. as a

philipp hildebrand : risk management introductory remarks by mr philipp hildebrand, member of the governing board of the swiss national bank, at the end - of - year media news conference, zurich, 14 december 2006. * * * as i have reported at a number of recent media conferences, the snb has updated its investment policies for foreign exchange reserves over the past few years. i would like to take this opportunity to look back, once again, at our motives for these adjustments and to outline the context of conflicting objectives within which the investment policy of a central bank operates. i would like to devote special attention to risk management, which performs a key function in investment policy at the snb. looking at the current structure of our foreign exchange reserves, it is evident that we have moved a certain distance from the traditional structure of central bank portfolios. traditional portfolios consisted almost exclusively of short - term government bonds in usd as well as, possibly, eur or jpy. by contrast, we at the snb have gradually diversified our currency risks over the past few years, have lengthened the maturities of our investments and invested in additional bond categories and in shares. as a result of these adjustments, we are probably one of the most innovative central banks in the area of investments nowadays. however, i would like to stress the fact that we have never pursued innovation for its own sake. the adjustments are our response to a challenge that all central banks with a significant level of currency reserves will probably have to face, sooner or later. the challenge is to safeguard the protective function of currency reserves while simultaneously making use of their earnings potential. in simple terms, what is needed is first, to structure the reserves in a way that ensures their availability when overcoming any kind of monetary crisis, and second, to invest them in a way that ensures they will generate the highest possible returns. returns must be generated, if only for the simple reason that earnings are needed to finance the necessary growth in currency reserves. furthermore, we owe it to the public to manage our currency reserves in a professional manner. the protective function of our currency reserves is fundamental. it is a direct corollary of the snb mandate, in which monetary policy takes precedence over investment policy at all times. however, without questioning the primacy of monetary policy, there was still some leeway for greater management efficiency, particularly in the area of foreign exchange reserves. we have now exhausted a large portion of this room for manoeu