reaction. a target band gives us more flexibility in the implementation of monetary policy. no doubt, however, that a point target can also be attractive, as it is clearer and constitutes a stronger anchor for expectations. given the snb's excellent track record with regard to price stability – twelve years of inflation below 2 % – we can benefit from firmly anchored expectations without having to accept the unnecessary constraints that a point target would imply. the third subtlety is that, while the snb defines price stability as inflation of less than 2 %, the ecb, which has more or less the same definition, aims for a rate close to 2 %, and the bank of israel has an inflation target of 1 to 3 %. why is it that the three central banks have different views as to what exactly constitutes price stability? there are several considerations here, but the most important is the historical perspective. for central banks that have faced relatively high and volatile inflation levels in the past, a comparatively high inflation target is already ambitious. only once expectations have been anchored, can further steps towards price stability be envisaged. this is true for israel, where keeping inflation between 2 % and 3 % is a huge step forward as compared with historical records. for the ecb, which still has to cope with adjustment difficulties ( such as higher inflation in countries that are catching up, like spain or greece ), an inflation rate " close to 2 % " seems reasonable. monetary independence thus allows a country to choose the level of inflation it finds appropriate. monetary independence also helps reduce the variability of inflation and economic conditions, and i will turn to this issue next. reaction to country - specific shocks the second reason why i think that switzerland should not adopt the euro is that monetary independence gives us the necessary leeway to react to country - specific shocks. although i mentioned earlier that the swiss economy is highly integrated into the euro area, we are not an average european country. over the last 20 years, switzerland has become a platform for global activity : while we count 4. 2 million jobs within our country, swiss firms employ another 1. 8 million people abroad. moreover, we are an international financial centre : about 15 % of swiss gdp originates from the financial sector. as a consequence, switzerland's business cycle is closely related to the development of the world economy and to the situation in financial markets. mood swings in international financial markets and in investment decisions impact on the swiss economy through different channels. on the one hand,

of a central bank. a central bank can only act as a lender of last resort if it has the means to act as one. this is especially important if the banking system has relatively large liabilities in foreign currency. while a central bank can, in principle, create an unlimited amount of domestic currency, its foreign currency reserves are limited. recent events have highlighted the importance of an adequate level of foreign reserves for financial stability. 6. conclusions i would like to close today by stating that, in my opinion, extraordinary central bank action was indeed justified to counter financial market turmoil, and that it was also successful in halting the developments in mid - march, which threatened to develop into a vicious circle of fire sales and falling asset prices. however, central bank action cannot resolve the underlying problems. it can only provide temporary relief. the solution to the crisis must come from market participants themselves. central bank action appears to have been relatively successful. but there ’ s one thing that every economist knows only too well, and it is that there is no such thing as a free lunch. so the question naturally arises, what has been the cost of the recent extraordinary central bank interventions? the first potential cost of recent central bank action is in terms of moral hazard. one of the biggest challenges that lie ahead of central banks and regulators, once the crisis has settled down, is to consider how to reduce moral hazard in financial markets, in order to prevent this factor from becoming the reason for the next – and potentially even bigger – financial crisis. the second potential cost of recent central bank action could be in terms of inflation. the financial market crisis affects inflation in various ways. on the one hand, the crisis has resulted in a more expansionary monetary policy stance in some countries. this has probably contributed to the rise in commodity prices in recent months, and to the rise in energy prices, in particular. on the other hand, the expected economic slowdown associated with the crisis should dampen inflationary pressure. however, the aggregate effect of the crisis on inflation is far from obvious. the crisis has thus increased the uncertainty surrounding the inflation outlook. consequently, central bankers are currently challenged not only on the financial stability front ; they also need to be extremely alert to developments on the price stability front.