Thomas Jordan: How money is created by the central bank and the banking system

Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, to the Zürcher Volkswirtschaftliche Gesellschaft, Zurich, 16 January 2018.

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

Ladies and Gentlemen

It is a great pleasure for me to be your guest here tonight. The subject of my speech is the creation of money in our economy. Since money creation in our financial system is closely linked to the granting of loans by banks, I am also going to talk about lending. I shall, moreover, address the issues of sovereign money and access to digital central bank money, insofar as they relate to our main topic.

We are all aware of how profoundly the economic and monetary developments of the last ten years have been shaped by the global financial and economic crisis. Central banks responded swiftly and resolutely to the crisis, reducing interest rates and pumping large amounts of liquidity into the banking system. Once interest rates were down to almost zero, central banks were forced to adopt unconventional measures. Against the backdrop of a dramatic appreciation of the Swiss franc, the Swiss National Bank resorted mainly to interventions in the foreign exchange market, supplemented for a while by a minimum exchange rate for the Swiss franc against the euro. Since the discontinuation of this minimum exchange rate, the SNB has charged interest - known as negative interest - on the sight deposits of banks. The aim of all these measures has been to stabilise price developments and to support economic activity.