Switzerland’s central bank didn’t give up control over monetary policy by introducing a cap on the franc to curb its gains, Vice President Thomas Jordan said.
“The minimum exchange rate can’t be confused with an exchange-rate target,” Jordan said today at a conference in Lucerne, Switzerland, according to the text of his speech distributed by the organizers. “With an exchange-rate target, there’s an automatic loss of monetary policy autonomy. With the minimum exchange rate, that’s not the case and the SNB will be able to maintain its mandate also in the future.”
The Swiss National Bank introduced a limit of 1.20 francs versus the euro on Sept. 6 to fight deflation threats and aid exporters. While the Swiss currency climbed to a record level 1.0075 per euro before the introduction of the ceiling, the SNB’s measures have kept it in a range of 1.2012 to 1.2474 for the past two months.
“The independence of monetary policy is absolutely essential for a central bank to carry out its mandate in the long term,” Jordan said. On its website, the Swiss National Bank says it conducts monetary policy “as an independent central bank. Its main task is ‘‘to ensure price stability, while taking due account of economic developments’’
In the euro area, the European Central Bank expanded its measures to fight the region’s debt crisis in August by buying Italian and Spanish bonds. Still, it’s rejected calls by some countries that it be used to boost the power of the region’s rescue fund, saying that governments must take the lead in tackling the crisis.
When countries are carrying excessive debt loads, they tend to ‘‘ask a central bank for help to solve any problems with its printing press,” Jordan said. “The fading limits of fiscal and monetary policy can have problematic consequences for an economy, however.”
The Swiss franc is sought by investors in times of financial turmoil and the latest intervention follows an attempt to weaken the currency in 2009 and 2010. SNB President Philipp Hildebrand told the NZZ am Sonntag newspaper in an interview published on Nov. 6 that the central bank is “ready to take further measures in case economic prospects and a deflationary development should require it.”
“The SNB had to take far-reaching measures to limit the negative effects on the Swiss economy and to carry out its mandate,” Jordan said today. “With the introduction of a minimum exchange rate versus the euro, the situation stabilized.”