According to economists, SNB should only be concerned with price stability
Published: Friday, Dec 15th 2023, 10:40
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Economists at the University of Lucerne are proposing a revision of the mandate of the Swiss National Bank (SNB). The SNB should focus solely on price stability - and thus maintain its independence in the long term.
"What is more important, a stable real exchange rate or maintaining the purchasing power of the Swiss franc?" asks Adriel Jost, a researcher at the Institute for Swiss Economic Policy (IWP). This trade-off is becoming increasingly urgent and important.
In his "Report on Monetary Policy and Financial Stability" published on Friday, Jost highlights the high public debt and interest rates in other currency areas, which force the SNB to intervene in order to ensure price stability. However, this brings it into conflict with its economic mandate.
The Lucerne economist therefore suggests deleting the phrase "taking account of economic developments" from the SNB's legal mandate. The SNB's monetary policy mandate should be limited to price stability.
As a second measure to protect the purchasing power of the Swiss franc in the long term and preserve the SNB's independence, Jost proposes a "significant" reduction in the SNB's balance sheet. This would increase the central bank's equity ratio and give it more room for maneuver. It would then be able to combat a strongly appreciating franc with interventions without jeopardizing price stability.
Finally, Jost rejects the idea of a larger SNB Governing Board. "If price stability is to be the top priority, there is no need for a broad-based Governing Board that reflects different views," argues Jost.
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