Mon­e­tary pol­icy dur­ing fi­nan­cial cri­sis a tough job: Jor­dan

Pure Gym gets new fa­cil­ity with Bar­clays

The Pak Banker - - Front Page -

ZURICH

Mr Thomas Jor­dan, Chair­man of the Gov­ern­ing Board of the Swiss Na­tional Bank ad­dress­ing at the Swiss Bank­ing Global Sym­po­sium said he would also like to thank Ka­trin Assen­macher, Rita Ko­bel and Peter Kuster for their help­ful com­ments, and also ex­tends his thanks to the English Lan­guage Ser­vices.

When the Swiss Bankers As­so­ci­a­tion was founded 100 years ago as Vertreter des schweiz­erischen Bankgewerbes, or Rep­re­sen­ta­tives of the Swiss Bank­ing Trade, this step was warmly wel­comed by the Swiss Na­tional Bank (SNB).

Sur­pris­ingly, per­haps, the se­nior rep­re­sen­ta­tives of the SNB were even mem­bers of the As­so­ci­a­tion be­tween 1916 and 1937. Since that time, of course, the role and the tasks of cen- tral banks have changed sig­nif­i­cantly.

It would be un­think­able for the SNB nowa­days to be­long to a pri­vate sec­tor in­ter­est group.

Nev­er­the­less, I am happy to ob­serve to­day that the re­la­tion­ship be­tween the SNB and the Swiss Bankers As­so­ci­a­tion has re­mained good and re­li­able over the years.

The Swiss Bankers As­so­ci­a­tion has been a key di­a­logue part­ner for the Gov­ern­ing Board on all mat­ters re­lat­ing to the fi­nan­cial cen­tre, and con­tin­ues to be so.

My topic to­day is the mon­e­tary pol­icy which cen­tral banks have pur­sued dur­ing the past few years to man­age the fi­nan­cial and eco­nomic cri­sis. I will dis­cuss the im­pact of the var­i­ous con­ven­tional and un­con­ven­tional mea­sures, and I will talk about the risks. Since the be­gin­ning of the cri­sis, the ex­pec­ta­tions placed in cen- tral banks by politi­cians, me­dia and the gen­eral pub­lic have in­creased sub­stan­tially.

There­fore, I will also touch upon the po­lit­i­cal econ­omy risk with re­spect to the in­de­pen­dence and man­date of cen­tral banks. In line with the ti­tle of this sym­po­sium, I will be ex­tend­ing my view be­yond the SNB and Switzer­land.

The re­sponse of mon­e­tary pol­icy from 2008 to 2012

The cri­sis be­gan in the fi­nan­cial sec­tor, and it was pos­si­ble to de­ploy mon­e­tary pol­icy rapidly and ef­fec­tively. As a con­se­quence, cen­tral banks were in the front line right from the start.

Fol­low­ing the col­lapse of Lehman Brothers in au­tumn 2008, they rapidly re­duced short-term in­ter­est rates: in Switzer­land, the US, the UK and Ja­pan to al­most zero per­cent; in the euro area and many other coun­tries to his­tor­i­cally low lev­els slightly above zero.

The aim of th­ese in­ter­est rate re­duc­tions was to sta­bilise the fi­nan­cial sys­tem and mit­i­gate the loom­ing deep re­ces­sion. They also served to counter de­fla­tion ex­pec­ta­tions and pre­vent a neg­a­tive price spi­ral.

With short-term nom­i­nal in­ter­est rates close to zero, fur­ther in­ter­est rate re­duc­tions were soon im­pos­si­ble. This meant that con­ven­tional mon­e­tary pol­icy, in other words, man­ag­ing the econ­omy via short-term in­ter­est rates, was no longer an op­tion. Yet con­cerns that mon­e­tary pol­icy might lack any fur­ther in­stru­ments were un­founded. The mea­sures that can still be used are of­ten de­scribed as un­con­ven­tional in or­der to dis­tin­guish them from the cus­tom­ary in­stru­ments.

Most cen­tral banks in ad­vanced economies make use of th­ese un­con­ven­tional mea­sures.

While the Fed­eral Re­serve and the Bank of Eng­land are chiefly fo­cused on en­sur­ing a more ex­pan­sion­ary mon­e­tary pol­icy, the goals of the Euro­pean Cen­tral Bank (ECB) and the SNB are some­what dif­fer­ent. In the case of the ECB, its un­con­ven­tional mea­sures are di­rected against dis­rup­tions in the trans­mis­sion mech­a­nism of mon­e­tary pol­icy aris­ing out of the de­te­ri­o­ra­tion in government fi­nances and credit con­di­tions in the sin­gle cur­rency area.

TheSNB, for its part, took a stand against an un­war­ranted tight­en­ing of mon­e­tary con­di­tions as a re­sult of the strength of the Swiss franc - a strength whose ori­gin was to be found in in­ter­na­tional de­vel­op­ments.

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