in this environment. the japanese yen and the swiss franc have gained slightly since mid - year ; the franc thus remains highly valued. the situation on the foreign exchange markets is still fragile ( cf. chart 3 ). money market developments let me now turn to developments in the swiss franc money market. thomas jordan has already mentioned the adjustments we have made to the way we calculate exemption thresholds for the negative interest rate. these changes came into effect on 1 november. since then, many banks have been benefiting from higher exemption thresholds and have an incentive to take on liquidity via the money market. as expected, this demand for liquidity led to higher trading volumes and a slight rise in saron and other short - term repo rates in the week following the introduction of the new calculation basis ( cf. chart 4 ). the snb was active in the repo market from time to time in order to keep saron close to the snb policy rate. the swiss franc repo market functioned smoothly throughout the transition, not least thanks to the state - of - the - art and reliable money market infrastructure. the snb trades using the same infrastructure as the banks on the interbank market. this is particularly helpful as it ensures that the snb ’ s operations are highly effective. transitioning from libor to saron saron is currently establishing itself as the leading reference interest rate for financial products in swiss francs and is replacing libor. as you know, the uk ’ s financial regulator will only be supporting libor until the end of 2021, so it is important that the transition process on the market take place now. over the last few years, the national working group on swiss franc reference rates ( nwg ) has put forward recommendations on how to proceed with replacing libor. market participants must now act decisively to implement these recommendations. a saron - based swap market is especially important for the financial markets. swap markets are used to hedge interest rate risk ( e. g. in mortgages ) ; the associated transactions produce a swap curve, which serves as a benchmark for pricing and valuing bonds and loans. to date, however, trading – and hence liquidity – in saron swaps has been low. this will change once more saron - based cash products become available. the successful transitioning away from libor therefore hinges on the development of such products. page 2 / 6 berne, 12 december 2019 andrea m. mae

lower for a while, given our relatively large supply of physical capital, but a tendency towards equalization would nonetheless set in. what this might mean for us is a higher rate of inflation for some time, together with a collapse in asset prices and in domestic gross capital formation. a mixture of higher interest rates and high, sticky wages would be very harmful to our economy. the third fear that was sometimes expressed, although here i must say i was rather sceptical myself, was that the euro would gradually render the swiss franc obsolete. with many of our trading firms billing and paying their suppliers in euros, there might be a tendency for them to adopt the euro more generally for their accounting as well as for their domestic transactions. some people even went as far as predicting that before long wages would be paid in euros. shops, hotels and restaurants would rapidly be forced to accept euros, so that visitors from abroad would no longer see the need to convert their euros into francs. eventually swiss consumers themselves would follow suit, so that switzerland would be de facto integrated into the eurozone. more than national pride would be hurt by such an “ euroization ” of the swiss economy. for one thing, such a development would entail the loss of seigniorage income. with a monetary base of about 40 billion francs ( 26 billion euros ), that is about 5 ’ 700 francs ( 3 ’ 700 euros ) per person, seigniorage in our case is far from trivial. but even more seriously, the loss of monetary autonomy caused by a displacement of the swiss franc by the euro would prevent the snb from creating liquidity in case of need. to a large extent, the fears that we had reflect the more fundamental debate about fixed versus flexible exchange rates. which foreign exchange regime is appropriate for a given country at a particular time? although this view is not universally shared, many economists argue in favour of a corner solution : either purely flexible exchange rates, or rigidly fixed ones. intellectually, i tend to share this view, except that i would like to take it one step further : either purely flexible exchange rates, or monetary union. rigidly fixed exchange rates do not constitute a polar case. in fact, they accumulate many drawbacks. thus, fixed exchange rates have never been known to be fixed for very long. fixed exchange rates are fixed until the day they change, and when they do change, they tend to do so brutally in an atmosphere of crisis, of pain