the previous year. this slowdown was mostly due to the deterioration in economic activity in emerging economies and to the recession in the euro area. although the european financial and debt crisis is weighing particularly heavily on the euro area economy, it is also curbing growth in other regions. the crisis intensified in spring and summer 2012 amid growing fears that one or more member states may leave the euro. refinancing costs in the affected countries climbed and bis central bankers ’ speeches uncertainty among economic agents rose considerably. owing to the fact that the swiss franc was highly sought - after in its role as a safe haven currency, the deepening of the crisis triggered strong upward pressure on the franc. particularly in the critical months of may to august, the only means of enforcing the minimum exchange rate was through extensive foreign currency purchases. overall, the snb purchased foreign currency last year to the value of chf 188 billion. the snb was well - prepared from the outset for the enforcement of the minimum exchange rate. since its introduction, we have been monitoring the foreign exchange markets round the clock, from when they open on sunday evening in sydney to when they close on friday evening in new york. in order to achieve the required effect on the exchange rate, we conduct foreign exchange transactions with a wide range of domestic and foreign counterparties. with a network of well over 100 banks from around the world as counterparties, we cover the relevant interbank foreign exchange market. the foreign currency purchases made in 2012 led to a significant rise in our foreign currency holdings. the increased volume also resulted in a considerably higher level of financial risks on our balance sheet. yet these foreign currency purchases were necessary. an appreciation of the swiss franc would have caused an inappropriate tightening in monetary conditions, which in turn would have compromised price stability and had serious consequences for the economy. we therefore firmly believe that, given the circumstances, there was no alternative to the minimum exchange rate. inflation remained in negative territory in 2012. from mid - year, however, the negative inflation rates trended closer to zero. our most recent inflation forecast also shows that there is neither a threat of inflation nor a threat of deflation in the foreseeable future. in 2012, the swiss economy did not escape entirely unscathed from the global slowdown in growth, and lost momentum. nevertheless, switzerland ’ s gdp still grew on average by 1 % for the year, as compared to 1. 9 % a year previously. the fact that price stability

the snb will also need this flexibility to reduce the balance sheet again, if necessary. the demands of the initiative would considerably curtail this flexibility. were the initiative to be accepted, the snb would – in the current environment – have to make large - scale gold purchases to meet the required 20 % minimum share of gold. it would not be allowed to sell this gold at a later point, even if it had to reduce its balance sheet again in order to maintain price stability. in a worst - case scenario, the assets side of the snb ’ s balance sheet would, over time, be largely comprised of unsellable gold. managing the interest rate level and the money supply would only be possible via the liabilities side of the balance sheet ; in practice by issuing the snb ’ s own interest - bearing debt certificates ( snb bills ). this would have serious financial consequences : on the assets side, the snb would neither have any interest income nor could it realise any profits on gold due to the ban on sales. on the liabilities side, it might have to pay high interest on debt certificates. the snb bis central bankers ’ speeches could therefore find itself in a situation in which it could only finance its current expenses by means of money creation. the far - reaching demands of the gold initiative would inevitably have repercussions for our monetary policy. in making its monetary policy decisions, the snb would have to consider the long - term consequences the necessary gold purchases would have on its capacity to act and on the structure of its balance sheet. furthermore, market participants would hardly regard monetary policy decisions as credible, should these decisions involve a substantial expansion of the balance sheet, which in turn would impair the effect of monetary policy. it is unlikely that decisions such as the introduction of the minimum exchange rate or the stabilisation of ubs would have been made in the same way given these circumstances. this constraint on the capacity to act would not be in switzerland ’ s interest. gold is nevertheless an important component of the snb ’ s assets. however, this is not because gold guarantees price stability. in today ’ s monetary system, there is no direct connection between the proportion of gold on the snb ’ s balance sheet and price stability. this is also evidenced by the fact that the objective of price stability has been better achieved in recent years, even though the proportion of gold on our balance sheet was smaller, than at times when gold accounted for a much