 The Education event for today, we're very pleased and honored to have Thomas Moser, who is an operative member of the governing board of the SNB. Thomas Moser received his doctorate in economics from the University of Zurich. He was a teaching and research assistant at the University of Zurich's Institute for Imperial Research in Economics and an economist at the called Swiss Economic Institute for Business Cycle Research at the Etihad Zurich before joining the Swiss National University in 1999. From 2001 to 2004, Thomas was an advisor and then senior advisor to the Swiss Executive Director at the IMF in Washington, D.C. And then from 2006 to 2009, he was executive director at the IMF, representing Swiss National Consistency. Since 2010, Thomas Moser is an alternative member of the governing board of the Swiss National Bank. He's also head of economic affairs. And today, he will be addressing the topic of the SNB's approach to monetary policy, conventional and unconventional. In December 1999, the Swiss National Bank abandoned monetary targeting and introduced a new monetary policy strategy. The new framework proved successful and even displayed some advantages over the other frameworks in the early stages of the recent financial crisis. Like other central banks, the SNB had to complement its conventional monetary policy within unconventional measures. Since September 2011, the SNB set a minimum exchange rate against the euro. In an environment with short-term interest rates at zero, this allows the SNB to ensure monetary conditions that are appropriate for the Swiss economy. I think that now Thomas is going to address both the current policy and what the prospects are for the continuation of that. So thank you very much. Thank you very much. It's a pleasure to be here. I mean, it would be nice to be above the clouds rather than in the clouds, but I guess it's a good start to be here in the clouds. So I will talk about the Swiss National Bank and its monetary policy. At the IMF, the saying was that before the Asian crisis, no one really knew the difference between the World Bank and the IMF. And so on after the Asian crisis, the IMF became very well known, mainly because of the heavy criticism that the IMF got for how it handled the Asian crisis. And it's a little bit similar now with the central banks. They have become very known now. Before the crisis, a lot of people didn't really know the difference between commercial banks and central banks. Now I think the difference is very clear. And I know this is not the case for you all financial specialists, but at least in the public at large. So I intend to say something about the Swiss National Bank's monetary policy approach or framework. I talked first about the conventional monetary policy as it was adopted with the new monetary policy strategy in 2000 and how it had to be changed in reaction to the crisis. So starting with the basics, if you look first at the mandate that the Swiss National Bank has, I think it's very interesting if you compare that with what other central banks have. And I think one thing that you will notice very quickly is that there is a lot of pragmatism and flexibility in the mandate of the Swiss National Bank. And that's usually a surprise if you talk to people abroad because they always view the Swiss National Bank together with the Bundesbank. It's one of these very stability, price stability oriented central banks. And the teaching has been that you need to have a very clear framework, a very rigid clear framework, but that has not been the case actually for the Swiss National Bank. And if you look first at the constitution then this is a very general sentence. It says as an independent central bank, I mean I think this is important, the independence is in there. The Swiss National Bank shall follow a monetary policy which serves the channel interest of the country, which can be a lot of things. And then if you go into the law then you see it says, first it repeats the same thing again, the country's a hold, and then it says it shall ensure price stability. In so doing it shall take your account of the development of the economy. And here I think one of the differences here is that unlike in the United States where you have a dual mandate where the real economy and price stability are basically on the same level, and unlike in the monetary, in the European Monetary Union where the ECB has a single target, the price stability, again here you have a nice Swiss compromise where you have both objectives in there, but you have a hierarchy. So price stability comes first, if that is taken care of then you can take into account the real side of the economy. So I think this again is relatively special, but it gives you again quite a lot of flexibility. Now this is the mandate that we received from Parliament and this is what the Swiss National Bank then made out of it. That's the Monetary Policy Strategy in place since 2000. First of all, since in the law it just says it shall ensure price stability. This is also quite different from other countries where you have clearly defined what price stability is already in the law. This is not the case in Switzerland. So it was up to the Swiss National Bank. It had the freedom to define itself what it understands on the price stability and the definition that we gave ourselves is that basically anything between zero and two percent. This is also again a proof of some kind of pragmatism. It is our clear understanding that we are not able to fine tune inflation enough that we could say it's always at two percent, it's always at one percent or it's close to two percent. Basically we are happy with anything between zero and two, given that we are not able to fine tune inflation to a larger extent. Then we use as a main indicator our medium-term inflation forecast and that's a slight difference. We always had big discussions with the IMF. We always said we are not an inflation target and one thing here is that we are not targeting the inflation forecast. We take it as an indicator but we also look at other things including monetary aggregates and a lot of indicators but this is clearly our main indicator. But also here we have not like a classic inflation target that we say this is our inflation target, that's how long we can deviate from the target that's how quickly we have to come back. Again here a lot of flexibility and pragmatism. And then finally also I think something that is quite special, our operational target, how we implement monetary policy is like other central banks with an interest rate but most of our other central banks use an overnight interest rate to do that and because of an overnight interest rate they can control very tightly or they have an interest rate that they set themselves. In the case of the Swiss National Bank the operational target is the three-month LIBOR. And this also when the concept came out in 2000 or 1999 when it became clear this will be the concept. A lot of questions were asked and for instance the IMF too in the article 4 discussions with Switzerland wondered whether the Swiss National Bank would be able to control the three-month LIBOR. That's an interest rate that's set in London, it's relatively a long term for a central bank and they seriously doubted that it would be possible to target or to steer the LIBOR precisely enough. And it turned out the experience it went quite well and it was mentioned before that during this crisis in the early stages of the crisis it actually even had some advantages. This is one of the things the implementation of monetary policy, no one really cared about it too much. I mean there were some specialists, I have looked into it, they thought strange what the Swiss National Bank is doing here, it seemed to work then everyone forgot about it. Then the crisis came and this difference suddenly became again important and in the Swiss case it was important in the sense that in the early stages of the crisis in 2007 you had these risk spreads starting to increase and what that meant for the Swiss National Bank is given that our operational target is to keep the LIBOR at a certain level when these risk spreads began to increase that meant basically that with overnight rates we had to become more expansionary in a sense. So that's for instance again one thing that was said is the Swiss National Bank is becoming more expansionary and we said it's not the case because our operational target is the LIBOR so we didn't change our monetary policy stance but the effect was as if for instance the ECB would have become more expansionary. So we had like a built in mechanism that reacted to the increase in the risk spreads and I think that was to the advantage of the Swiss National Bank we didn't have to have a specific policy decision to lower our overnight rates for instance because it was automatic it was built into the system which was an advantage that was not something that was intended when the framework was created but it turned out to be an advantage when the crisis started. So I think there are some specificities about the monetary policy strategy of Switzerland that served us well it gives us a lot of flexibility which is a surprise to some people when they look at it but it worked out quite well. It was not sufficient and I will come to that because we had to then take additional measures during the crisis. But let's look now first just a rough glance at the inflation performance of Switzerland and I think as I said we have for instance the Fed has this dual mandate but what is clear is that for all central banks price stability is something that is important and the inflation performance is something for which the central bank is responsible and if you look at that I took here a very long series since 1925 and you see also the different monetary regimes that Switzerland went through roughly up to 74 fixed exchange rates and then in 1974 Swiss National Bank together with the Bundesbank led the revolution to monetary targeting and that phase lasted for Switzerland relatively long until 2000 when then the current system came into place but I think one thing that you can see is that the inflation performance got better over time. You have certain peaks of course World War II afterwards you have the big peak in inflation up to 15% these are annual inflation rates then you have in the 70s you have a peak over 10% you have again in the 80s and mid 90s inflation rates above 5% but since then relatively narrow inflation rates. Now this is true not only for the Swiss National Bank you also have for other central banks not the countries that the inflation performance improved over time but I think what is still true for Switzerland is that we have if you compare it now here with US inflation and Euro area inflation that inflation in Switzerland has generally been lower than in other countries. Now as I said we had this was the way monetary policy worked in Switzerland it worked quite well and then came the crisis here again to remind what a dramatic impact it was the world real GDP and this very significant drop it took in end of 2008 we had a recovery but given the drop that we had in a normal recovery you would after the drop you would see growth rates much higher than before to catch up again this catch up did not happen on the contrary we had again faltering growth rates and a very weak recovery. Now this is for the world economy as a whole if you look at Switzerland it looks very similar so there is not much difference in terms of the economic performance of the Swiss economy. Now one difference from other countries is that Switzerland had the problem of or still has the problem of a very strong Swiss franc is that the Swiss franc is serving as a safe haven and you see that very often that when there is a crisis somewhere that the Swiss franc gets stronger and that's when I joined the Swiss National Bank the first time in 1999 that was usually the saying is Swiss franc gets strong what's happening and I remember very well for instance 2001-1911 that's exactly what happened after lunch suddenly Swiss franc becomes very strong and the question is what's happening and we go to the news and then we see that there is some risk event in the world which increases the demand for the Swiss franc. You also see on this chart this is now the real exchange rate export weighted you see very well that the line you see is a long-term average you see very well during the phase that has been called the great moderation around 2003 lasting up to the crisis this was a time when a lot of people said there will be no more financial crisis we will certainly not have any crisis in the advanced countries the merchant countries they are all graduating becoming advanced countries and so also the demand for the Swiss franc as a safe haven was faltering a lot of people asked whether the Swiss franc still has this safe haven role and it was clearly not in demand and you see the Swiss franc was relatively weak compared with the average in the years right before the crisis but then when the crisis started 2007 there was a dramatic strengthening of the Swiss franc and especially this extreme movement in the summer of 2011 and that's when the Swiss national bank and I will come back to that had to set this minimum exchange rate had to start to do foreign exchange interventions actually foreign exchange interventions started already earlier already in 2009 but a different concept then it was taken then when basically an exchange rate ceiling or floor however you look at it was set in 2011 but with this chart again basically shows you how extreme these movements weren't this is monthly data so the peak there was quite extreme which would if you would have daily data for such an index or even during the intraday the day when we had to react these were extreme movements so this was a little bit special for Switzerland but I think it was general for all central banks that the shock of this great recession was so large that they all became extremely expansionary because one of the lessons of the Great Depression was or at least that's what we think it is one of the lessons that the central banks were not expansionary enough and that was clearly different this time around but it also led to the fact that we are all now in uncharted territory not voluntarily but we clearly have a situation that is unprecedented that's true for all central banks and given the very expansionary monetary policy all central banks came into a situation where they reached the so-called zero lower bound where their interest rates that they use as a policy rate came to zero and it was not possible to lower it further there are certain monetary policy rules simple for instance a tailor rule that show you how expansionary your monetary policy should be and when you took that tailor rule certainly in 2012 then it showed you that you should go away that you should have negative interest rates which is not very well possible there are certain ways to do it but it's not necessarily to be recommended but basically what it showed us that even interest rates at zero are not low enough and as you can see here these are the different official interest rates of different countries you see they all reacted quite strongly in reaction to the crisis in red you see the swiss case and here keep in mind that unlike other central banks for all central banks this policy rate is overnight rate for the swiss national bank it's a three month rate so when we are at the same level we are much more expansionary with a three month rate than other countries are with an overnight rate and you also see from this chart we are the only ones who really went to zero the three month library is at some point so I mean you cannot really go much further and there were questions and still there are some questions among central banks whether it is technically possible to go so low when you see the other central banks stay at 25 basis points or even higher also out of fear or out of concerns that it might not be advisable or even possible to go further we had similar discussions in 2009 when you reached 25 basis points there were also a sense that we reached a zero lower bound but then during dramatic months in summer of 2011 it became clear that it is possible to go to zero but only under extreme measures and here again the swiss case before but I didn't mention but you probably know anyways that the way we use the three month library as an operational target is that we set a band around it so we are not saying that we want to have the three month library at 1% for instance but we always had a 100 basis points band around it and the reason for that is exactly because it is a three month rate and we cannot, we cannot set it we have to influence it through our report transactions but we need that band because we cannot so exactly steer it as you can see here in 2008 when the crisis was on the way we lowered it dramatically and in 2009 the band that we set came to zero so the band was from zero to 1% and then the way we proceeded is just to take the upper band further down and right now the band is only at 25 basis points itself while the library itself is at zero here again you have now this time as nominal bilateral rates you have the Swiss franc euro in red with the scale on the on the right and you have the Swiss franc against the US dollar on the left in blue and here again you see these dramatic movements that we had especially in the summer months of 2000 2011 so then we came we had the situation we had in summer of 2011 was that we had a strengthening of the Swiss franc before we had intervened in the foreign exchange markets in 2009 and in the first part of 2010 in 2010 it looked like the recovery was on the way relatively quickly this recovery that you saw before in growth rates it came again to halt the recovery and especially what happened was that the concerns or that the crisis shifted from a crisis in the banking sector mainly coming from the US to a crisis in the euro area and there were concerns about individual countries in the euro area starting with Greece and the Swiss franc started to strengthen dramatically especially in the summer of 2011 in addition you had the first I don't know whether you remember but you also had in 2011 in July was the first negotiations about the debt ceiling in the US and the downgrading of US government bonds which also had quite an effect not so much this time around but the first time around in 2011 so we came to a situation where the Swiss franc started to increase so dramatically that to weaken the Swiss franc or to just basically lower again the LIBOR from 25 basis points to zero by increasing liquidity dramatically and we had three weeks in a row where we announced kind of a quantitative target we announced targets for the monetary base and that helped to a certain extent so the Swiss franc weakened in September it turned around again and we knew that we had to come with something more dramatic and on September 6 2011 we came out with the following statement in the morning during trading hours as you can imagine there were a lot of discussions going on at the time at the Swiss National Bank not only about the exact level where we would come in but also there were some questions about the impact to the market should we come before the market opens should we come during trading hours and so on in the end we came in during trading hours at 10 o'clock remember it very well very interesting day for central bankers I watched very closely the exchange rate and remember we came out I think it was 10 o'clock and this is data as you can imagine a lot of economists and do research with it because this is also something that is unprecedented and the move that we had that we caused in the exchange rate I was also told is unprecedented and there were a lot of questions whether it would be possible to move the exchange rate to that extent especially I mean we had certain Swiss National Bank didn't do that the first time in 1978 something similar was done but a lot of people told us well that was 10 I mean financial markets are much more liquid nowadays you cannot compare the 70s and the 2000s and what worked in the 70s will not necessarily work now turned out it worked but it used a lot more a lot more especially later than when we had to actually defend the floor of course the numbers that we had to use the amount of money we had to use is much higher than whatever has been used in the 70s but so at 10 o'clock when the announcement came out first nothing happened the first like half minute maybe it takes time for the information to disseminate that then you thought the exchange rate start to flicker a little bit and then suddenly you had a dramatic movement then it got stuck again I mean we were around 1.10 maybe that morning 1.9 1.10 so we came out and said okay we do not accept anything and as you can see the language was quite dramatic too last paragraph with immediate effect it will no longer tolerate Euro-Swiss-Frank exchange rate below the minimum rate of 1.20 and the next sentence I think was important too so SMB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities of course that's one of the nice things if you have to defend the weakening of the exchange rate you cannot say that because you do not have unlimited quantities of foreign exchange reserves that you would need that you would need to sell in that sense if we can buy foreign exchange reserves and sell Swiss-Frank's and since we can print our own Swiss-Frank's we can do that in unlimited quantities technically we can do that there's always a question of course how large you want your balance sheet to be but technically there is no limit we can buy all the euros out there if necessary and basically that's what we said impressed the market so it went up from 1.10 in a short time to maybe 1.18 and then it got stuck there a little bit and then it went further above 1.20 in the whole about four minutes I think if I remember it correctly it took for the exchange rate to move from this 1.10 to above 1.20 and that worked basically without any interventions that was just a threat that we would do it and the markets followed as you can see here from this graph this is what happened so when we came in is when you see the second peak to the low to the down here so these were the first liquidity measures so that helped a little bit then strengthening of the Swiss-Frank again then that's when we came in with the minimum exchange rate so we went above and for the rest of the year we went above the floor that we had said and we did not have to intervene and then in 2012 in spring I think it was March, April if you recall that's when serious concerns about the breakup of the eurozone emerged and there was this whole discussion about the nomination risks and then I think before it was just a crisis of individual countries of the eurozone in 2011 but in 2012 people really wondered whether the eurozone would survive there was talk about Germany exiting and so on and so on and that's when the Swiss-Frank went to the floor I wouldn't say got tested like some people say because basically it was just I don't think the financial markets ever doubted or wanted to test whether we could hold the floor it was more like let's get out of the euro so everyone went out of the euro and a lot of that went into the Swiss-Frank and we just had to buy up a lot but as you can see we were at the 120 basically from spring 2012 to fall 2012 and what made the difference was when Draghi came out and said we do whatever it takes to save the euro and that's when the pressure immediately went off of the Swiss-Frank and that's when we went again above first only a little bit in fall 2012 above the floor at the beginning of the year we are again I call it significantly above the floor maybe not everyone would given what we went through I call it significantly above the floor but we are clearly above the floor and we did not have to intervene since Draghi's speech so that the minimum exchange rate is still there but it's not binding at the moment so we are not in the market and we do not have to defend it because during 2012 when we had to intervene to hold the floor the consequence is that we bought a lot of foreign exchange and our foreign exchange reserves grew quite a bit and as a result our balance sheet but here this is to point out that we are in relatively good company and that's what I meant in the beginning other central banks did not intervene in the foreign exchange markets they intervened in one market and they bought other assets but almost all central banks increased their balance sheets quite a bit here is an index that starts at 100 before the crisis and you see we are at the top here together with the Bank of England but you see that all other central banks Bank of England the Fed certainly to some extent also the ECB balance sheets quite a bit since the beginning of the crisis of course if you then take the balance sheet and put it into proportion to GDP then we are one of the leaders here if you don't take an index but I think that the fact that we set this exchange rate floor had immediate effect also on the economy and the graph that I usually take to show that is a leading indicator if you look at the OECD leading indicator for the US, for the Euro area and for Switzerland then you can see coming out of the crisis the recovery in Switzerland was actually quite strong so the leading indicator increased more than that of other countries and then in 2011 when the Swiss franc started to strengthen you see that we had a deterioration in the leading indicator much stronger than other countries that's clearly the effect of the strong Swiss franc and then towards the end of 2011 when we came in with this exchange rate floor you see that immediately again the outlook for the Swiss economy changed and stabilized again the economic outlook so this I think is a for me one of the best pictures to prove that the exchange rate floor really worked and was the decisive factor to stabilize the Swiss economy but you also see that the situation was very special is when you look at a government bond yields at the short term I mean we had during 2012 you had phases where they were negative up to two years I think at one stage even up to five years but the three months government bonds have been issued not just traded issued with a negative interest rates since we came in in 2011 this is I think a very I mean you are a specialist on this but I always have a hard time explaining people why someone would pay money to lend money I mean this is still something that has to find its way into textbooks and the only explanations you maybe have better explanations but the only explanations I have why someone would actually buy something is that on the one hand there was at least during 2011 there were talks that some investors especially hedge funds were so worried about credit risks that they preferred to buy a government bond with negative interest rates rather than put the money into a bank at the zero interest rates but with a large credit risk so that was one of the stories but that cannot be true for the entire period and the other of course is that just cash has been so plenty government bonds as a use for collateral and other purposes has been more valuable than cash but still it's a very very special situation and you see it's still ongoing so the government is still issuing three month bonds at the negative interest rates at this stage which shows you that the situation is still quite quite special I mean also long term interest rates have been extremely low and you see especially also again for the period 2012 when we had to intervene the Swiss long term interest rates were even below the one of Japan now recently with the start of the discussion about tapering interest rates started to increase again but they are still at the extremely low level and what also shows you a little bit the special situation in Switzerland I think something that in my view I always use when the question comes up why does Switzerland why did you need this exchange rate floor wasn't a little bit extreme if you look at the export sector it's not doing that badly and so on I think what clearly is a difference to other countries is that we actually had negative inflation so we had we had a deflation going on also since the introduction of this foreign exchange floor Swiss inflation rates have been negative they have now come back after almost two years to about zero but the recent inflation data again has been negative so we have been we had a considerable period of negative negative inflation now you may say well this is also true for other countries in 2009 but I think the story in 2009 was quite different that's when the great recession when we had the big shock the 2009 negative inflation rates are mainly a story of falling oil prices falling food prices you also see that in other countries and here I have this graph to show you the difference you have not only headline inflation but you also have core inflation which takes these effects of oil and volatile food prices and so on the green and the blue line here and you see in 2009 they are not negative but the difference is in 2011 2012 they are negative so it's not a story here of oil prices falling like it is in 2009 but it's a much broader fall in the price level and this is different from other countries as you can see you had now recently falling inflation rates too in the euro area and in the US but apart from Japan which has since quite a while of of deflation Switzerland was also very different here from other countries now what about the export story a lot of times we are told so I showed it also because this was a very important motive I showed you in the beginning our definition of price stability it's anywhere between 0 and 2% so below 0 is not acceptable so the measure itself I think can be very well justified just by the fact that we had negative inflation and to prevent a deflationary spiral we had to become much more expansionary than we could be with zero interest rates and given that the problem in Switzerland was specifically a problem of a very strong exchange rate which was clearly not in line with fundamentals during the crisis to set this cap or this floor was the way to go now if you look what did it for the export industry then you can see that in the aggregate it looks actually quite good exports imports you have to dip there during the 2009 and then you have the recovery and basically we are again in the aggregate at or above above the level that we had before the crisis so if you now go into the individual industries picture is a little bit different what is really special about the export industry during the recent crisis has been that it is very much driven by very specific sectors watches and the pharma industry watches has a lot to do with the increasing wealth in the emerging economies which have not been hit so much by the great recession and there are some special factors going on in the pharma industry but if you look at the individual industries then you see that for instance for metals and for machinery they have not reached yet again the level that they had before the crisis actually for instance machinery in green is somewhere around the lowest level that there was during the great recession so in the aggregate doesn't look too bad and to the individual industries the picture is quite a different one and currently the situation also is so that we still have a negative output gap so even though the recovery is ongoing it's a relatively weak recovery and we are clearly not the Swiss economy is clearly not working yet at its full capacity you have three different measures here of an output gap showing you how far away that we are still from using the full capacity of the Swiss economy and I think here what this picture shows you an additional factor that comes in why the Swiss recovery or why the Swiss economy looks relatively healthy or strong if you just take this very broad view and it has a lot to do with immigration immigration was relatively strong in Switzerland that is also a very special situation or has been a very special situation over the last years and that strengthened consumption quite a bit if you would look at GDP per capita the situation looks much worse than GDP in the aggregate and you can also see it here with output gap and the red and the yellow line are simple filtering methods where you just take a trend while the blue one uses the production function that takes this immigration into consideration and you see there that the output gap if you take this measure is much larger than if you just take a simple filter that the output gap is still negative you can also see by the fact that unemployment is still increasing I mean it's nothing dramatic compared with other countries but we are reaching now slowly the peak but it has still been increasing showing another evidence for a negative output gap and you can also see it in the inflation forecast that's our latest inflation forecast from September the next one will come out in December but you see that and here the red one is the most recent one you see that even and that's a conditional forecast which has been done with the assumption that the interest rates stay at zero for the next three years so even if interest rates would stay at zero for the next three years our models do not predict inflation to rise much above 1% so it's extremely low inflation environment so there's no inflationary risk inside in the foreseeable future now some may have seen this morning in the NCZ we talked about it quickly about this unconventional monetary policy Professor Waldensberger is one of them and of course there are concerns about the fact that this unconventional which has been going on now since two to three years depending on what you look at becomes the new conventional which is clearly not the idea but there are worries about side effects and one such worry we have been a lot of times voicing as well and that's the housing market that this very low interest rate environment is stimulating the housing market to an extent that might not be healthy and I took here a graph of prices, house prices, apartment prices and I on purpose took a long or series to show you the last housing crisis we had end of the 80s 90s and if you compare it to graphs then it's quite scary that we are in the same region now you can of course come with a lot of arguments why it's different this time we all know this immigration is one of these factors that you have some fundamental demand for housing for apartments but the price increase has been quite dramatic and this is one of the reasons why we have voice concerns and asked for additional instruments given that one of the big discussions before the crisis as you probably know it has been should the central bank react to excesses on asset markets with interest rate policy and clear common wisdom before the crisis was no that's not what the central bank should do to make things worse first of all central banks do not really know when bubbles develop no one can tell when a bubble is on the way you can tell it with hindsight but not before and certainly not in real time and interest rates are not the right instrument they are too blunt an instrument to try to deflate the bubble and a lot of times if you try to deflate the bubble you cause havoc and you might cause a problem that wouldn't have existed otherwise so the common wisdom was the Greenspan doctrine which was clean up after the crisis don't do anything while it happens while the bubble is ongoing but you clean up after the crisis by lowering your interest rates that's basically what central banks followed it became now evident that this cleaning up bill can be quite expensive and there has been a lot of thinking going on about should central banks not do something already during the bubble and I think there is still no common view out there some central banks are more of the view that interest rates should be used for instance if you look at statements of the bank of Sweden recently or even the central bank of Canada they hinted to the fact that they would increase interest rates the bank of Canada or that they would not lower interest rates like the bank of Sweden because of the concerns on the housing market other central banks and we are more in this camp think that interest rates should be reserved for price stability but we need additional instruments to deal with these issues in the housing markets and that's why we asked parliament to give us this counter cyclical capital buffer which we did receive and we already activated in February and I think history will show whether this is enough or whether we need additional instruments and whether we can actually avoid another crisis as we had it in the late 80s beginning 90s but all in all I think if you would ask me what is the main job of central banks then I think Alice Rivlin had the best attempt at that so the job of central bank is to worry and in that sense I think if you would conclude what's the what's the approach to monetary policy with national bank I think it's a very pragmatic in a sense pragmatic way and very risk oriented way in the sense that we are not claiming that we can find you in the economy but that we can try to address the biggest shocks and try to take the biggest risks out of the economy we have done that with the exchange rate floor and we usually do that with setting our LIBOR interest rates in a way to prevent inflation which or inflationary developments that would be harmful to the Swiss economy. Thank you very much if you have any questions I'm happy to try to answer them You agreed to join us for lunch afterwards but maybe there's a couple questions or any questions What do you think is the fableation of the Swiss question? We go then it is right now no of course I mean this is a this is almost impossible to answer we have of course several equilibrium models at the Swiss national bank but they all tell me something different so it's a little bit actually like we do our inflation forecast unlike other central banks some other central banks have one model that they use for inflation forecasts we have a whole series of models and the same is true for the equilibrium exchange rate we have a whole series of models they tell us different things and we get a range so I would say at the moment and that's also what we publicly say the Swiss franc is still overvalued it's still very strong but I wouldn't dare to give you an exact rate What sort of external pressures are you facing in those sectors saying that you are one of the biggest currency manipulators of the world? No that was a big issue well I mean a big issue we clearly were aware of these issues and there were some claims especially coming from the United States Petersen Institute saying that we are the biggest currency manipulator what always helped I think we explained our situation at the BIS that's one of these forums that you can explain to our central banks and I think it was always well understood also in the IMF article 4 I think we clearly could show that our situation is different and one of the reasons was we showed that we actually had negative inflation you have the Federal Reserve for all central banks worrying when inflation falls to 1% they already said well there's a big risk that we fall into deflation we had deflation so in that sense it was very clear that we had to do something also I think if you look at the movement of the exchange rate it is pretty clear that it was extreme in 2011 and we are still significantly above the long-term so I think that's another argument that we usually where was that that we usually use to defend the position so the Swiss franc is clearly strong if you take a simple average instead of a equilibrium model and then what it especially also used in the US and at the Petersen Institute and that's why Thomas Jordan gave the speech during the spring meetings recently and it's difficult to understand what we are usually told is that you have such a large current account surplus in Switzerland how is it possible that you have an overvalued or a strong Swiss franc and at the same time a very strong current account surplus and I think what we tried to explain and I hope successfully is that unlike in other countries like Germany or China where the biggest part of this current account surplus is a trade surplus in Switzerland that our current account surplus almost moves independently of the exchange rate so we have a lot of income in their investment income we have things in there like carry trade a lot of items that are not dependent on the exchange rate so even if the Swiss franc would strengthen another 50 or 60% the current account surplus would not move much so these are other factors and we had to explain this situation but I think overall the criticism hasn't been too harsh one last question you started with the diversification of the ISPs to other currencies is that the sign of exit from the monetary policy so that's for you it's easier to sell foreign currencies they are not so much in focus than to start to sell euros non-necessary I think we started quite early I mean it was clear to us that when we had to intervene we bought euros but we also didn't want to have only euros on the balance sheet I think the diversification was more an issue of asset management than an issue of the monetary policy stance or of course it will help probably once we exit depending a little bit on the exchange rate moves but it was more an issue of asset management and as you said we started to diversify I think one advantage that we have over some other central banks is that again here we have a very flexible framework when it comes to asset management there are other central banks that can only buy government bonds and that has not been the case in Switzerland for quite a while so we can buy not only government bonds we can also buy stocks shares equity shares we can buy corporate bonds and so we used all of that and in addition to that we started to diversify into other currencies and we especially into Asian currencies also auto smaller currency so there has been an ongoing process just in the sense of good practice of asset management to diversify your assets