Thomas Jordan: High Swiss current account surplus - consequences for SNB monetary policy?

Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the University of Basel, Faculty of Business and Economics, Basel, 23 November 2017.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Introduction

Switzerland has had a surplus on its current account ever since the 1980s. In simple terms this means that, in our economic exchanges with other countries, we have more receipts than expenses. In 2016, this surplus stood at around 10% of GDP - and it has even approached 15% in some earlier years.

Textbook economic theory suggests that a current account surplus is a function of an undervalued currency. In order to restore balance in future years, the currency of a country running a surplus would need to appreciate, leading to a reduction in net exports.

However, this contrasts with the Swiss National Bank's (SNB) assessment that the Swiss franc has been highly valued for years, and at times even hugely overvalued. Despite a slight weakening of the exchange rate, our monetary policy thus continues to be geared towards easing the pressure on the Swiss franc and making investments in Swiss francs less attractive.

How can the persistent current account surplus, textbook economic theory and the SNB's own assessment be reconciled? Is the surplus in Switzerland perhaps even the result of a monetary policy designed to deliberately push down the exchange rate in order to boost exports?

International debate about certain countries' current account surpluses and unfair exchange rate policy has intensified in recent years. In this context, Switzerland has been on the US Treasury's 'monitoring list' since 2016, although it is not designated a 'currency manipulator' in the associated report as it does not meet all the relevant criteria. However, Switzerland is being specially monitored. We are maintaining a constructive dialogue on this matter with the responsible government agencies in the US.