trading volume is - second - the position of a currency held in international portfolios. relative to the size of our country, the sfr occupies an unusually prominent position in international institutional and private portfolios. this position is the combined result of an above - average stability record, an efficient financial centre and the commitment to an independent monetary policy which lends the sfr special diversification characteristics in global portfolios. this certainly is a sign of strength, a sound basis for value creation, especially in our financial industry. at the same time, its strong position makes the sfr particularly sensitive to global capital movements. thirdly, due to relatively low interest rates, the swiss franc - like the yen - periodically plays an important role in the short - term financing of trading positions. currency and securities traders take short positions in our money market to finance long positions elsewhere. this is a rather volatile game, often reinforced by herd effects, which comes and goes with short - term exchange rate expectations. these so - called carry trades from time to time generate a significant amount of short - term exchange rate volatility. in the recent past, however, such strategies have lost their appeal, probably as a combined consequence of last year's increase in money market rates and the appreciation of the swiss franc. in a broader perspective which also includes impacts on the real sector, three points of view will be moved to the fore. first and foremost, trade relations with euroland have always been strong, on the export as well as on the import side. under the new bilateral agreements, our connectedness with the eu may become even stronger in the years to come. given these structural conditions, it is clear that our economy is highly susceptible to shocks in the sfr / euro exchange rate. in actual fact, this marked dependence is the strongest economic argument of all those wishing to substitute the euro for the swiss franc as soon as possible. a second relevant perspective for the real sector is to be seen in the trend towards a real appreciation of the sfr since the transition to floating. real exchange rate index chf export weighted, november 1977 = 100 real appreciation 0. 6 % p. a. jan 73 jan 76 jan 79 jan 82 jan 85 jan 88 jan 91 jan 94 jan 97 jan 00 the rising trend - measured by the index of the real trade - weighted sfr exchange rate - averaged 0. 6 % per annum. its main causes seem to be two special features of our economy. one is

world of integrated capital markets one may also have good reason to argue the other way round. why are long - term capital flows, driven by perceived rates of capital productivity, less " real and fundamental " than trade flows? would it not also be possible to argue - based on recent experience - that capital flows to the united states were, for a long time, the fundamental causative change which effected - as a consequence - the deterioration in the current account? be that as it may, traders, investors and central bankers would be well advised to accept the fact, and be prepared for it, that in the short - and medium - term surprises are always possible in the forex markets. this was so in the past and will continue to be so in the future. smallness and connectedness : some facts let me now talk about the sfr, about its main features as a currency which is traded and held in international portfolios. the sfr plays a minor part on the stage of the global currency game - it is a dwarf among giants, so to speak. its position may be described by means of three indicators. first, by the sfr's share in the global turnover in foreign exchange trading. volume composition in forex ( daily foreign - exchange transactions, $ billion tradi ng wi t h ot her currenci es tradi ng wi t h us dol lar £ y dm aud ffr chf this chart is based on data collected by the bis in 1998, i. e. during the period prior to the introduction of the euro. the columns illustrate the composition of an average daily volume of approximately 1. 5 trillion usd by currencies. the usd clearly predominates. this is shown by the size of the lower areas, which represent the respective trading volume vis - a - vis the usd. it seems very likely that the advent of the euro has not significantly changed the pre - eminence of the dollar. the new figures to be expected this year will be instructive in this regard. the sfr accounted for usd 100 billion, i. e. approximately 7 % of the total daily volume in 1998. this may seem modest, but relative to the size of our economy it is a very respectable figure. the swiss franc is trading currency number 5, ranging behind the big three and sterling, but well ahead of the currencies of much larger countries like australia and canada. economically more important than the