Ten years on from the crisis, central banks’ basic mission has not fundamentally altered. However the environment in which they operate has evolved considerably, mainly due to structural changes. Some of these – notably the digitalisation of the economy and the emergence of new technologies and financial market players – have accelerated since the crisis.
These developments have impacted on three key markets for the Swiss National Bank (SNB): goods and services, foreign exchange and money markets. It is essential that the SNB understands the changes it faces, and adapts itself to them on an ongoing basis, in order to ensure the continued and optimal fulfilment of its mandate.
On the goods and services market, digitalisation may be exerting a twofold influence on prices: first, by eroding the pricing power of traditional retailers; and second, by increasing the responsiveness of prices to shocks affecting the economy. Monetary policymakers may have to grapple with this new phenomenon more and more, particularly in small open economies like Switzerland where inflation is heavily influenced by external factors, such as exchange rate fluctuations. The SNB is therefore analysing digitalisation thoroughly, in order to understand its repercussions.
The foreign exchange market has also seen profound change, in three areas: the technology being used, the fragmentation of trading activity and the emergence of new players. This is a key market for the SNB. It is here that we conduct interventions, as required, and it is here that we actively manage our foreign exchange reserves. In order to adapt to the structural changes and technological advances affecting the foreign exchange market, we have expanded our in-house capabilities, particularly with respect to the analysis of high-frequency data. Our technological resources and our skillset are state of the art.
Another key market for monetary policy transmission is the money market. It, too, has undergone major changes in terms of both structure and framework conditions. First, there has been a shift away from the unsecured segment to the secured segment, resulting in repos taking centre stage. Second, the money market reference interest rate, the Swiss franc Libor, is due to be replaced by SARON, a rate used for overnight transactions in the secured segment. In this changing context, the SNB is working to create a modern and resilient money market infrastructure that will allow it to deploy its entire monetary policy toolkit effectively and at any time.