and expectations of future interest rates. they also caused the swiss franc to weaken considerably. however, the increasing torrent of bad news about the global economic situation made their impact only temporary in nature. the massive overvaluation of the swiss franc continued anew, posing an acute threat to the swiss economy. on 6 september, the snb hence announced that it would no longer tolerate a eur / chf exchange rate below a minimum rate of chf 1. 20. it also indicated that it would enforce this minimum rate with the utmost determination and was prepared to buy foreign currency in unlimited quantities, if necessary. even at a rate of chf 1. 20 per euro, the swiss franc remains high. it should continue to weaken over time. if the economic outlook and deflationary risks so require, further measures will be taken. the decision to impose a minimum exchange rate was not taken lightly. it was a major step and has naturally elicited a wide variety of reactions. today, i would only like to address one of them. advocates of market efficiency claim that our intervention is misplaced as it interferes with the working of free markets. my first academic paper on the “ efficient market ” hypothesis was published in 1977 and i remain convinced that the more moderate versions of this hypothesis are valid. in particular, i think investors should always start from the premise that the market is “ hard to beat ” and that “ free lunches ” are extremely rare. however, i also believe that the extreme form of market efficiency, according to which the market price always and immediately reflects and reveals the underlying fundamental value of the asset in question, has been disproved in multiple instances. scholars have convincingly documented episodes of market overreaction, herd behaviour and momentum trading. there have also been numerous cases of what appeared ex - post to be manifest examples of mispricing in financial history, from the “ tulip mania ” in holland in the 1600s, to the recent house price bubble in the united states. one possible reason for this, which has been stressed in recent academic literature, is that investors who disagree with market valuations, and wish to trade on their convictions, have little chance of making a profit if the mass of ill - informed or irrational ( “ noise ” ) traders is too large. in the rare case of a safe haven currency, like the swiss franc, there is an economic justification for the central bank attempting to limit the detrimental impact of safe

well above its long - term average, then peaking at 12 % in 1995. until now, this was the swiss franc ’ s most significant deviation from the long term average observed. in contrast, between 1999 and 2008, the real effective exchange rate generally remained below its long - term average. it had started to increase around august 2007, then gaining over 30 % between that time and the end of june 2011. with these numbers in mind, the additional changes registered this summer are quite extraordinary. between early july and 9 august, when the swiss franc reached its historic peak, its real value climbed another 17 %. estimates show that the currency was then almost 40 % above its long - term average and more than 50 % above its pre - crisis level. 15 it can be argued that the swiss franc is strong because the swiss economy is faring well in absolute terms and, most importantly, in comparison with many of the country ’ s neighbours. indeed, the great recession was less pronounced in switzerland than in most other developed economies. the ensuing recovery was also relatively dynamic. the swiss economy was one of the first advanced economies to return to the pre - crisis level of gdp and, in striking contrast with many other countries, switzerland emerged from the crisis with solid public finances. indeed, this explains why, in the crisis years, the country ’ s overall debtto - gdp level fell below 40 %. exchange rate movements, like those observed this summer, strongly suggest, however, that such explanations do not suffice. slow - moving economic fundamentals or macroeconomic drivers can almost certainly not account for the sudden large movements of our exchange rate in july and august. the swiss franc ’ s safe haven properties and financial market participants ’ perceptions that the risks to the global economy were extreme in size and uncommon in nature ( and thus hard to evaluate ) offer a far more complete explanation. the unique safe haven properties of the swiss franc are well recognised. they have rarely been as clearly demonstrated as in recent history. it is striking, for instance, that the price of gold in swiss francs depreciated by approximately 5 % between early 2011 and 2 august, while, in the meantime, the us dollar price of gold kept breaking one record after another. the swiss franc ’ s safe haven properties are also illustrated by the negative correlation between its movements and the price of risky assets, such as equity shares. additionally, these movements are positively correlated with risk indicators, such as the vi