bruno gehrig : moving among currency giants – a swiss perspective speech by prof bruno gehrig, vice chairman of the governing board of the swiss national bank, at the swiss - american chamber of commerce, zurich, 16 january 2001. * * * first of all, i should like to thank you for the pleasure and delight of being invited to speak to you today. at the same time, i should like to emphasise how much i appreciate the exemplary and highly successful activity of the swiss american chamber of commerce. your organisation plays an invaluable part in the economic, political and - most important of all - in the personal relations between us and swiss citizens. in my speech entitled " moving among currency giants " i should like to outline a few ideas under four different headings. i shall start out with a few remarks on the system of floating exchange rates, which we have more or less learned to live with since 1973, the time of the breakdown of bretton woods. this will be followed by some considerations on the always topical subject of short - and medium - term currency movements. after this bird's eye view of general developments, the frog perspective will be highlighted. i will deal with the special features of our small currency, and end by drawing a few conclusions for the snb's monetary policy. floating exchange rates : perception and experience views on how floating currencies behave and what the implications of their implementation are have changed over the past 30 years, in the light of current experience. early protagonists had fairly idealistic expectations with respect to floating. for example, harry g. johnson, one of the grand old men of international economics, when he stated hopefully years ago : " a freely flexible exchange rate would tend to remain constant so long as underlying economic conditions ( including government policies ) remained constant : random deviations from the equilibrium level would be limited by the activities of private speculators … " 1 this optimistic view was based on two convictions. for one, on the notion that exchange rate distortions are primarily triggered by inconsistent government policies oriented to short - term effects. in actual fact, the economic developments of the late sixties and of the seventies promoted the perception of a fundamental contrast between inherently stable private markets and a destabilising public policy sector. on the other hand, most economists were profoundly convinced that free exchange rate movements would be clearly dominated by inflation differentials with no lasting impact on real exchange rates. it must be borne in mind, however, that

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