The president of the Swiss National Bank, Jean-Pierre Roth, says the Swiss franc's role as a safe haven may be more limited than in the past.
Roth told swissinfo on Wednesday that the aftermath of the terror attacks on September 11 and the current tensions in the Middle East had shown this.
"Traditionally the Swiss franc has been a safe haven currency but we observed after September 11 and what we observe now in the Middle East is that probably the role is limited compared with that of a few years ago," he said.
"This is good news for the Swiss economy because we expect the Swiss franc to be much more stable against the dollar and the euro than it was against the major currencies in the past," he added.
Roth explained that on the foreign exchange market, there were two major currencies - the dollar and the euro.
"The Swiss franc is a very small market, so if you want to readjust your portfolio, if you want to transfer your risk from the dollar, you have no choice, you have to go into the euro."
"The franc is not an attractive diversification currency as it was in the past when markets were less developed and monetary integration in Europe was not a reality," he said.
Roth added that the SNB had very clear attitude in the event of high demand for the Swiss franc.
"If our monetary policy would be distorted by an appreciation of the Swiss franc, we have to react with interest rates. We have done it in the past and we will do it in the future," he commented.
Price stability priority
Roth told swissinfo that the SNB would continue with its priority of price stability, despite calls from exporters for some kind of action to help them in the face of the high value of the franc, particularly against the euro.
Switzerland's main export and import customers are in the countries which form euroland.
"We cannot conduct a short-term oriented monetary policy aiming at stabilising the foreign exchange market and abandoning the long-term objective of price stability," he said.
"Of course, we integrate foreign exchange developments in our monetary policy decisions. We care about the foreign exchange market but it's not possible for us to manipulate things in order to improve artificially the competitiveness of the Swiss economy in the short term," he added
Roth said he knew there were many people in Switzerland arguing that the SNB should peg the Swiss franc to the euro.
However, he said that any such link would also have negative impacts for the Swiss economy.
Not least of the issues would be at what level the exchange rate would be set.
"The optimal or ideal level depends on many things and changes over time. It also depends on the inflation differential between the euro zone and Switzerland. We have lower inflation than in the euro zone," he explained.
"If you discount for that, you have over three years, a five per cent real appreciation of the Swiss franc against the euro, which is much less than the pound sterling appreciation," he noted.
Roth considered that another disadvantage of linkage would be a rise of Swiss interest rates, moving up to those of euroland.
"If we would join from outside to be some kind of associated member of the eurozone, our interest rates would move up by about 1.5 per cent, which would be a burden for the Swiss economy," he said.
Roth repeated that he expected growth of the Swiss economy to be about one per cent this year.
"We expect the Swiss situation to normalise during this year, accelerating progressively with price stability. I think if this scenario materialises, it will be an excellent one," he told swissinfo.
by Robert Brookes