it became fashionable elsewhere. in my country, most politicians consider monetary stability as a kind of common good which should escape partisan disputes. the fact that our federal government plays only a limited role in economic policy also supports the view that monetary decisions should be left to technicians. it is only very recently that the explicit mandate of promoting price stability has been introduced in the swiss national bank act. but central bank independence requires more than just an appropriate legal framework. what are the necessary elements? i see three of them. first of all, to avoid any ambiguity as to what the ultimate goal of policy really is, price stability must be clearly defined. in other words, at some point, a nominal anchor has to be set. this can be an inflation target approved by the government, or a definition of price stability adopted by the central bank. a clear definition of the central bank ’ s goal underpins expectations and allows an objective assessment of the implemented policy. it also protects the central bank from counterproductive bargaining concerning the appropriate direction of its policy. secondly, monetary policy must be forward - looking. because monetary actions affect prices only after long lags, the central bank ’ s policy must be pre - emptive. this implies that in certain circumstances, policy decisions taken in order to guarantee price stability in the long run may be difficult to communicate, or even unpopular. it is thus of key importance that the goal and the strategy of the monetary authorities are well understood by the market and the public. this leads me to two of the most important aspects of modern central banking : accountability and transparency. for sure, central banks have to be independent in order to fulfil their job of maintaining price stability in the long run. but in a democratic society, each institution must be held accountable for the consequences of its policy decisions. the central bank is no exception. i am deeply convinced that its independence might be in danger if the general public perceived monetary policy as not in line with the central bank ’ s mandate. to guarantee their independence in the long run, central banks must therefore invest a lot of energy in communicating and explaining their decisions. although this might appear constraining, it is in their own interest if the general public has a proper understanding of the monetary action. i also believe that transparency is not only necessary for the accountability of a central bank ’ s action, but that it also has its own merits : transparency reduces any uncertainty surrounding monetary policy and the future course of interest rates ; it makes private planning

years. today, thanks to its presence abroad, switzerland employs almost 1. 7 million people outside its borders. this amounts to 40 % of its domestic labour force. national boundaries cannot delimit the swiss economy anymore ; it is better described as a kind of global network to which brazil also belongs via the regional branches of abb, credit suisse, nestle, novartis, roche, schindler and ubs, to name only the most well - known firms. the fact that financial stability is a traditional facet of the swiss economy is largely due to the socio - political characteristics of my country. switzerland benefits from a stable political environment, an efficient legal system and a rather reasonable fiscal policy. social security is well developed without being oversized, and relationships between labour unions and the employers ’ associations are rather smooth by international standards. moreover, property rights are guaranteed. as a result, one of the most salient features of the swiss economy is the strength of its finance industry. despite its very small size, switzerland stands as the eighth largest securities market in the world. the total value of its quoted stocks and bonds amounts to four times its annual gdp, a world record. swiss banks manage about one third of total offshore assets worldwide, and our insurance and re - insurance companies have reached global dimensions. what are the keys to financial stability? for sure, financial stability is the result of many elements : the importance of domestic savings, the stability of the institutional framework, the strength of our banking system and - last but not least - the deeply rooted conviction of the general public that monetary stability is important and should be preserved. monetary stability : a well - accepted objective indeed, there can be no financial stability without monetary stability. history has taught us many times that policy instability almost invariably leads to financial chaos and, very often, to political unrest. but the issue is not avoiding hyperinflation only. i suppose that everybody in this room would agree that hyperinflation must be eliminated by all means. sooner or later, it leads to the total disorganization of a market economy. but even on a lower level, inflation interferes with growth and reduces welfare. in switzerland, too, some are of the opinion that “ a little dose of inflation ” is beneficial to growth and employment. i entirely disagree with this view. on the contrary, most empirical studies, as you know, show that there is a negative relationship between inflation and output in the long run. inflation is