some time, statistics have been suggesting a change in this behaviour. in contrast to the first phase, no additional customer deposits have been forming following the sale of foreign currency. one possible explanation for this development is that, instead of holding francs on their accounts, domestic investors have been keeping their assets in the relevant foreign currency, but have been hedging them using derivatives ( forward foreign exchange transactions and foreign exchange swaps ) ; 8 investors may, via their banks, have been purchasing francs using forward contracts, for instance. the banks, in turn, may have hedged the resulting foreign currency risk by demanding swiss francs on the spot market. this demand then ultimately resulted in upward pressure on the swiss franc, which the snb countered by means of appropriate foreign currency purchases. the rise in hedging transactions using derivatives is notable at swiss pension funds. for a long time, diversification and return considerations have prompted institutional investors to hold a significant portion of their assets in foreign currency investments. however, the associated currency risk is increasingly being hedged using forward foreign exchange as far as equity prices are concerned, the development of the swiss market has been similar to that of the rest of europe. cf. snb quarterly bulletin 3 / 2016, p. 26. for a detailed description of methodology and calculation of this item, cf. altermatt, lukas and baeriswyl, romain ( 2015 ), ‘ the effect of the monetary base expansion on the balance sheet of domestic banks ’, snb quarterly bulletin 1 / 2015, pp. 34 – 45. another possibility is that there have been significant changes in transactions with banks abroad. cf. auer, raphael a. ( 2015 ), ‘ a safe haven : international demand for swiss francs during the euro area debt crisis ’, snb quarterly bulletin 2 / 2015, pp. 40 – 52. seite 6 / 7 transactions. thus, as can be seen in chart 9, the pension funds ’ foreign currency exposure after hedging has declined steadily, while the share of their assets in foreign currencies has simultaneously risen to almost 50 %. in retrospect, full hedging of currency risk has turned out to be advantageous, due to the significant appreciation of the swiss franc and the comparatively low interest rate differential with other countries. at present, we are proceeding on the assumption that the economic outlook for the global economy will continue to firm. in the us, policy rates have been rising for some time and markets

currency area. what is theoretically uncontested is the following : in order to form a so - called optimal currency area, the member countries must be structured along similar lines or exhibit a high degree of flexibility. the benefits of a monetary union consist in a reduction of transaction costs for changing money, the elimination of internal exchange rate uncertainty, tighter competition thanks to easier price comparisons, the expansion of trade within a region, the prevention of competitive depreciation and speculative attacks on a currency, and growth in the liquidity of the financial markets. those advantages, in particular, that are associated with an increase in competition and an expansion in the trade of goods and services need time to develop. the costs of adopting a common currency include, first, one - off expenditure in connection with the introduction of notes and coins. in the european monetary union, these were estimated to be around 0. 5 % of gross domestic product. naturally, these costs are evident from the start and of a merely temporary nature. potentially the most significant costs of a currency union, however, arise from the loss of the individual countries'independent monetary policies. particularly at the early stage, these costs are a considerable factor. depending on the further economic development of the monetary union, they might eventually decline over the years. so where is the problem? the loss of autonomy in monetary policy is felt all the more with the growing number of asymmetric shocks. such shocks are disruptions that affect the economic structure, business activity and inflation of member countries in different ways. thus, they cannot be combated with a uniform economic policy. the recession of 1990 - 92 vividly illustrates the potential consequences of a single currency in regionally diverging economic situations. at that time, britain and italy withdrew from the european exchange rate mechanism and devalued their currencies. this measure permitted them to recover relatively quickly from the recession but they had to put up with higher inflation instead. conversely, and at the same time, germany had to contend with the inflationary effects of reunification. therefore, the german bundesbank had to raise interest rates to support price stability. what would have happened if the monetary union had already existed at the time and if italy, britain and germany had been members of the monetary union? italy and britain would not have been able to devalue their currencies. the sole instrument would have been monetary policy. the european central bank ( ecb ), had it already existed then, might possibly not