at the height of the global financial crisis, the total leverage in the major industrial economies increased significantly. in the us, private sector leverage alone had reached over 200 percent of gdp in 2008. other reports place the average debt level to gdp of major advanced economies at over 300 percent in 2010. the current process of deleveraging in the private sector remains incomplete, while pressures on fiscal sustainability in these economies also continue to weigh on confidence and growth. significant challenges continue to be faced in the implementation of the structural adjustments which in turn is affecting the process of fiscal consolidation. this has further restrained the policy flexibility to support growth. the extraordinary and exceptional monetary measures taken by central banks in these economies have provided support to their economies, but they have also come at a cost to savers with growing risks of market distortions and financial imbalances the longer these measures are held in place. bis central bankers ’ speeches in efforts to build stronger defences against a repeat of the events that precipitated the 2008 global financial crisis, the global regulatory reform agenda has placed significant focus on addressing elements of the regulatory and supervisory systems that allowed the build - up of excessive leverage. these elements include the unfettered innovation by financial institutions and the prevailing incentive system. financial engineering had led bankers and investors to lose focus on their risk exposures when they failed to understand the increasingly complex products that purported to reduce the risks. the weak regulatory regime and supervision also failed to rein in such unbridled innovation. misaligned incentives then fuelled excessive risk taking both at the institutional and individual levels. the inadequate financial buffers held by banking institutions against risk, a growing disconnect between the creation of credit and its use for productive economic activity and a highly interconnected system of financial intermediation ultimately combined to give rise to risks that disrupted credit flows to the economy. over time, these trends were substantially amplified. the global reform agenda has made important progress in efforts to reduce the fragility of the financial system and to strengthen its resilience. substantial work has already been advanced and largely completed on the development of global liquidity standards, the adoption of leverage ratios, and the significantly strengthened capital regulations which are important components of the reform effort. greater focus has also been placed on strong supervision, effective resolution regimes and arrangements for the oversight of systemically important financial institutions. while the effective implementation of these reforms is crucial, the world continues to seek more enduring solutions that will place financial institutions firmly back in the service of

the swiss franc. this led to a significant expansion of our balance sheet. how would we have proceeded in a sovereign money system? we would probably not have reacted so decisively given the difficulty of reducing liquidity once it has been created in a sovereign money system, which can therefore lead to higher inflation further down the line. a weaker monetary policy reaction would have exacerbated the negative consequences of the crisis for the real economy. quite apart from that, it is doubtful whether we would even have been able, in a sovereign money system, to react as we did because the initiative limits the number of tools we would as regards the snb ’ s shift from monetary targeting to interest rate targeting, cf. meyer, hans, on monetary policy in the new year, speech held at the university of st. gallen, st. gallen, 20 january 2000. page 6 / 8 have available. interventions in the foreign exchange market, which have played a central role in combating the overvaluation of the swiss franc, would not actually be allowed under a sovereign money system. when we intervene in the foreign exchange market, we exchange new swiss francs for foreign currency instead of giving them away. the creation of money in the context of foreign exchange market interventions is thus not ‘ debt - free ’. economic order another problem is that the swiss sovereign money initiative is etatist and imposes an unnecessary burden of responsibility on the snb and disempowers the private sector. this does not fit in with the swiss concept of the state and runs counter to proven principles of economic order. in order to achieve its aims, the initiative also does not shy away from providing for the possibility of general restrictions in economic freedom. this is clearly set out in the second sentence of the proposed article in the constitution. adoption of the initiative would impose additional tasks on the snb. the snb today has the clear and appropriate mandate to ensure price stability and has a large degree of flexibility in fulfilling it. under the sovereign money system, the snb would have to assume tasks which far exceed this mandate. the initiative imposes two additional tasks on the snb : first, making ‘ debt - free ’ payments and, second, guaranteeing the supply of credit to the swiss economy. the latter is problematic because it could lead to a conflict of interest between price stability and credit supply. above all though, it means that the snb would have to decide precisely who should receive the loans. yet