The president of the Swiss National Bank says that in the long term Switzerland has a stable and healthy currency, despite the current weakness of the franc.This content was published on June 3, 2007 - 10:05
Jean-Pierre Roth told swissinfo that as a currency that is independent of the euro, the franc enables Switzerland to carry out a flexible economic policy.
The Swiss National Bank is this year celebrating its 100th anniversary.
swissinfo: What has fundamentally changed in recent years on the Swiss currency and economic front to explain why the Swiss franc has become so weak against the euro?
Jean-Pierre Roth: You have to look at the picture over the long term. In real terms there has been a weakening of the franc against the euro recently. But if you look at what's been happening over years, you can see that in Switzerland we have a healthy and stable currency.
There have always been stronger and weaker phases of the franc. But if you now want to conclude that the franc has definitively become weaker, this ignores the fundamentals. And they are that at the same time the economy in Switzerland is growing strongly and that inflation is low. In other words, we have all the elements of a healthy and stable currency, and that the weakness can only be of a passing nature.
swissinfo: But a short time ago you warned about the dangers of dearer imports and increasing inflation. How is the national bank reacting to this?
J.-P. R.: As a rule when the franc is going through a weak phase, there is a rise of import prices and therefore wholesale prices. We have to make sure that this inflationary pressure from outside does not have any consequences for our domestic inflation.
As guardians of the currency, we aim for price stability. At the moment, we have that but we want to make sure it stays that way. As a result, we make decisions on interest rates that have a preventive effect.
swissinfo: While we are on the subject of interest rates. Is the interest gap between the franc and euro becoming narrower? This difference was particularly a strong argument when industry was suffering from a strong franc.
J.-P. R.: It still is now. But it has developed in different ways in recent years. For the time being we are around the historical average. The interest difference will always fluctuate.
We note that at present the economy in central eastern Europe wants to take advantage of the low franc interest rates and therefore loans in francs are increasingly in demand. That shows that the interest rate difference is still relevant. I am confident that our currency can get by in the future with low or favourable interest rates.
swissinfo: What other reasons are there for a national currency of one's own?
J.-P. R.: Having your own currency enables you to have your own economic policy. As a result we are not obliged to take on board interest rate decisions made abroad and therefore we can determine our own interest rate level. We can also exert an influence on inflation in our country.
These are big advantages. They make us more flexible than those countries in currency unions that have to share their monetary policy with others. The Swiss franc brings advantages to the Swiss economy.
swissinfo: When the National Bank was founded a hundred years ago, Switzerland was in a kind of gold standard-supported uniform European currency system. Why didn't that work?
J.-P. R.: It was indeed a joint currency system but countries did not maintain discipline. There were many devaluations and turbulences, which caused Switzerland to suffer a lot. Compared with then, there is much more stability in Europe with the euro.
As a result, there are big opportunities for Switzerland. As far as foreign trade is concerned, the conditions for us are much better now than they were ten to 15 years ago. Under the gold standard system of 100 years ago, exchange rates were fixed. Today Switzerland has more room for manoeuvre as a result of more flexible exchange rates with the euro. We therefore have better possibilities ourselves to take care of stable monetary basic conditions at home.
swissinfo: When the SNB was founded, the Swiss franc was barely 50 years old and Switzerland had to forge a standard franc out of the various cantonal currencies. Can the National Bank therefore not serve as an example for the European Central Bank?
J.-P. R.: There are two big differences between the currency integration of 1850 in Switzerland and that of today in euroland. Switzerland in 1850 already had a federal government and a federal constitution. The EU does not have a government and a constitution has been on the drawing board for years.
The currency integration [of Switzerland] was more simple to carry out because the cantons managed to agree on a gold currency, that means a common value standard.
As a result, confidence in the new franc was automatically assured because its value was defined by gold. Today there are no gold standards any more. Confidence is based on the policy of the European Central Bank. Such a currency integration is much more difficult to manage.
swissinfo-interview: Alexander Künzle
Born in 1946, Roth has been president of the Swiss National Bank (SNB) since 2001. He is head of the department responsible for economics, international affairs, and legal and administrative matters.
He completed his studies in economics in Geneva in 1969, beginning at the SNB ten years later.
In 1996, he was appointed a vice-president of the SNB and head of the department responsible for banknotes, business relations with the confederation and the administration of gold holdings.
100 years Swiss National Bank
Switzerland's central bank opened for business on June 20, 1907.
It conducts the country's monetary policy as an independent central bank. Its primary goal is to ensure price stability, which it considers an important condition for growth and prosperity.
The SNB is responsible for the issuing of banknotes and the distribution of coins.
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