words, there has been a marked decline in the money multiplier. 9 the increase in base money reflects the rise in demand for the swiss franc, which is seen worldwide as a safe haven in times of crisis. without an expansion in the monetary base, money would have been excessively scarce and its price would have risen massively. this would in turn have led to a marked drop in the level of prices, our currency would have appreciated even more, and economic activity would have declined. can this strong expansion be reversed when necessary? yes, it can. if the demand for swiss francs weakens, the supply of money can be reduced at any time, thus ensuring that the currency retains its value. the snb has a wide range of ways and means at its disposal for absorbing liquidity. however, one important condition for a successful reduction in money supply is that the snb must have unrestricted control over its balance sheet. and in particular, it must, if necessary, be able to sell foreign currency for swiss francs, in the same way as it has been able to make foreign currency purchases in recent years. we therefore must also firmly reject any ideas aimed at channelling our assets into a sovereign wealth fund, even though we may be highly sympathetic to the matters in question, such as securing pension provision. 10 summary and outlook in conclusion, allow me to stress once again how valuable it is to have a dialogue on the core issue of sound money. in my remarks, i referred to the crucial importance of the three mainstays of a robust paper money system : a central bank mandate focused on price stability, the independence of the central bank in setting monetary policy, and solid state finances. as we have seen, sound money is always subject to latent threats. it is essential that we remain on our guard if we are to identify these threats in good time and ward them off. what are the biggest threats to sound money at present? in my view, there are two developments in particular that we need to be watchful of. on the one hand, any move to make central banks an instrument of state financing would undermine the second mainstay, namely central bank independence. on the other hand, the consequences of the coronavirus crisis could also impact on the soundness of money. overall, state financing needs and thus government debt have increased considerably as a result, and this could undermine the third mainstay if countermeasures are not taken over the medium term

to a high level of trust in central banks. the fact that inflation has been held in check for so long may also explain the increasing popularity of ideas from an entirely different perspective. the proponents of modern monetary theory would like to see central banks being put at the service of state financing. their take is that independent central banks are merely a troublesome relict and that monetary policy should largely be determined by the government ’ s financing needs. but experience from throughout history shows that this would, sooner or later, end in an economic policy fiasco. as you can see, the positions are far apart, with diametrically opposed interpretations of facts. the aim of my speech is to provide some clarity from the perspective of switzerland ’ s central bank. to this end, i will set out some fundamental thoughts on the properties of sound money and the various types of money. i will then address the question as to whether, against the backdrop of our current monetary policy, the swiss franc can still be described as sound money. page 2 / 8 sound money is stable money but let us first take a step back and look at money as a concept. money is a generally accepted medium of exchange, and performs two other important functions, namely as a unit of account and as a store of value. as a unit of account, money serves to make economic transactions comparable. in this function, it is also used for representing the nominal value of all kinds of claims and liabilities. as a unit of account for determining value, money plays a prominent role in virtually all walks of life – from the workplace to healthcare and pension provision. for money to be a generally accepted medium of exchange, it must be possible to use it to buy goods or services not only today, but also tomorrow, and the day after, and so on. money can therefore also be used as a store of value. however, money is not the only means of holding and growing wealth, and it is often not the most profitable. although it does offer security and flexibility, unlike risky financial investments it generates little or no return. so what constitutes sound money? my answer is unlikely to come as a surprise : money is sound if it fulfils its functions as well as possible. and this depends on its value being stable. only if this is the case will it be broadly accepted as a medium of exchange over the long term. furthermore, as a unit of account, money that is stable in value makes it possible and easier to plan