most mature economies gradually return to their normal growth path – and i do not dispute the diagnosis that this demands more time after a severe financial and banking crisis than it would in more normal business cycle circumstances – one can reasonably expect real rates to return to higher levels than those observed recently. this is good news for savers bis central bankers ’ speeches and pension funds alike. it should also be taken into account by borrowers, especially long - term borrowers, such as those active in the mortgage market. from their perspective, it is inappropriate to consider the current low rates as representative of a so - called new normal. the intended economic stimulus provided by low interest rates will only last for a few years, not decades. it is crucial for long - term financial stability that those who make long - run debt commitments are fully aware of this reality and that they plan accordingly. what about inflation risk? personally, i do not share the view that the current period of central bank activism will be followed by a resurgence of inflation. first, contrary to common assertions, persistent - as opposed to unanticipated - inflation is limited in its capacity to reduce sovereign debt burdens. second, the low levels of inflation we are currently experiencing are the result of improved monetary policy, combined with a general acknowledgement that inflation does not buy durable economic performance. neither of these factors are affected by recent events. we can therefore anticipate that, with current or enhanced levels of understanding of monetary mechanisms, and central bankers ’ continued preference for price stability, future inflation levels will resemble those of the last 20 years. references bernanke, ben s. 2005. the global savings glut and the u. s. current account deficit. remarks at the sandridge lecture, virginia association of economists, richmond, virginia. 10 march 2005. borio, c., and p. disyatat. 2011. “ global imbalances and the financial crisis : link or no link? ” bank of international settlements. working paper no. 346. may 2011. gagnon, j., raskin, m., remache, j. and sack, b. 2010. “ large - scale asset purchases by the federal reserve : did they work? ” federal reserve bank of new york staff report no. 441. imf. 2005. building institutions. world economic outlook ( international monetary fund ). september 2005. joyce, michael, ana lasaosa, ibrahim stevens and matthew tong

recent months. consequently, the total sight deposits of domestic banks have, at approximately chf 25 billion, remained almost unchanged. this is a significantly higher level than before the financial crisis. it exceeds the minimum reserve requirements many times over. as a consequence, interest rates on the swiss franc money market are still close to zero. despite the fact that interest rates are still very low, the volume of activity on the secured swiss franc money market remains at a relatively high level. by contrast, the volumes traded on the unsecured swiss franc money market are still markedly lower than their pre - crisis level. the management of the three - month libor is, however, not affected by this, and can still be guaranteed. the management of the foreign exchange reserves allow me to conclude with a few words on the management of our foreign exchange reserves. first, let me stress that the increase in the foreign exchange reserves in 2009 and 2010 was a direct consequence of monetary policy measures. it had nothing to do with the pursuit of investment goals. with interest rates close to zero, the snb created additional swiss franc liquidity through foreign exchange market interventions. this prevented the rise in the value of the swiss franc from leading to what at the time would have been an undesirable tightening of monetary conditions. the foreign exchange reserves therefore surged from around chf 50 billion at the end of 2008 to a good chf 200 billion by the end of 2010. a direct consequence of our much larger balance sheet is the increase in the financial risks associated with our foreign exchange reserves. these risks have materialised in the last 12 months, and have led to significant losses for the snb. they hold the potential for further losses. just as the increase in our foreign exchange reserves was determined by the demands of monetary policy under the exceptional circumstances that prevailed in 2009 and 2010, monetary policy considerations will continue to dictate our actions in the future. this means, in particular, that selling our foreign exchange reserves ( and buying swiss francs ) is not an option at the moment. monetary policy also dictates that our currency risks not be hedged. in effect, hedging the exchange rate risk using derivatives would be equivalent to buying swiss francs against foreign exchange for forward delivery. the effect of hedging on the market is thus comparable to the direct sale of foreign currency. the only option for the snb is therefore to bis central bankers ’ speeches diversify its risks as efficiently as possible