The monetary policies
The monetary policies that are adopted in any country play a vital role in enhancing the outcomes of the economic processes in a country. The financial institutions play a critical role in defining the financial status of any country. The significance of the central bank is entrenched in the oversight authority of all financial institutions in the country. A necessary means of exercising this role is through the determination of policies that guide the financial markets in a country. Issues such as management and control of inflation and enhancing the stability of the country’s financial system are vital roles that all central banks undertake in the respective countries. The Swiss Central bank is charged with making the monetary policies that are crucial in defining the financial stability of the country. This paper explores the role of the central bank in Switzerland in the formulation of financial policies.
The significance of the Swiss National Bank is linked to the different roles that the bank plays in the country. The role of the national bank must be construed as a means of asserting the monetary policy in the country. According to Bacchetta et al. (2019), one must explore the responsibilities of the national bank as a means of defining the policies that the bank creates. Further, Kotarski & Tkalec (2019) note that the central or national banks are tasked with the ensuring that a country maintains a given structure that facilitates its economic growth. A key argument is tied to the need for viable financial policies that will consolidate the financial efforts of all institutions in the country.
The Swiss National Bank has offices in three cities from where it manages the economy. The offices are based in Zurich, Geneva and Basel (Hüning, 2019). The bank is the only maker of the local currency, and as such, it is tasked with the control of the flow of money into the local markets (Weber, 2019). There is a need to evaluate the successful fulfilment of these roles, especially in terms of the level of control that the bank has on the economy. According to Hüning (2019), it is essential to consider the relevance of the bank in regards to the financial status of the country’s markets. The structure of the SNB is also a critical factor that is relevant in discussing the policymaking role of the bank in the country. The bank is headed by a governing board which manages the monetary policies, institutional administration and the guidance of the bank in terms of formulation and adoption of strategic plans (Lambertini et al., 2019). These are vital functions that influence the mandate of the Swiss National Bank in the regulatory roles that it has in the country. Sixteen agencies support the operations of the Swiss National bank under the regional banks, which are essential in the distribution of money in the country (Stuart, 2020). The usefulness of the bank is linked to the diverse roles that it plays in the country.
The discussions of the role of the SNB must consider the functions that the bank plays in the financial markets of the country. The different policies that the bank establishes and implements are related to the functions that it plays. As such, Hampl & Havranek (2020) cite the need to understand the diverse functions of the bank in the process of discussing its policy-making roles. One of the purposes of the Swiss National Bank is ensuring the stability of the financial system in Switzerland. According to Stuart (2020), the national bank defines the elements and boundaries of all monetary policies in the country. In so doing, the Swiss National Bank provides an analysis and interrogation of the probable risks in the financial system. It establishes the best responses that would limit the exposure of other financial institutions to these risks. The financial systems must operate at equilibrium as a means of enhancing fairness and equity in the operations of all financial players in the market. Matyja (2020) also adds that the SNB establishes the regulatory frameworks that facilitate the development of financial infrastructures that will facilitate the growth of the economy. The efforts to stabilize the financial systems is a core function that the Swiss National Bank plays in the country.
The Swiss National Bank collaborates with other financial agencies from other countries to enhance international monetary cooperation (Ljubaj, 2020). The significance of international monetary cooperation is established through the cordial collaboration between the different national and central banks in the cooperating countries. Matyja (2020) notes that such international cooperation is fundamental in driving the elements of the financial processes in each country, especially in defining the regulatory frameworks that would drive the different economies.
The SNB enjoys the note-issuing privilege in Switzerland (Tomioa & Valletb, n.d.). The implication is that this is the only bank in the country that makes the money that is used as a mode of transaction in the country. These privileges must be only bestowed on the central financial institution in the land (Matyja, 2020). A key element is cooperation that exists between the national bank and the regional banks through the different agencies that ensure that the SNB’s policies are implemented. The central bank is expected to provide the standards of quality and security that are expected of the local currency (Hampl & Havranek, 2020). The specificity of these standards remains an essential factor in the fulfilment of this mandate; hence the reason it cannot be placed on the smaller financial institutions.
Further, the SNB also manages all cashless transactions in the country. Matyja (2020) notes that the SNB operates through the proxy where the cashless transactions are conducted through the Swiss Interbank Clearing whose sight deposits are managed by the SNB. The involvement of the SIC is a means of increasing the reliability of the cashless financial systems in the country. Ljubaj (2020) also opines that the roles of the Swiss National bank are tied to the compiling and provision of statistics regarding the financial performance of the country. These statistics reflect the international investment position, rates of direct investment and the performance of all local banks (Tomioa & Valletb, n.d.). These statistics are pertinent information that influences the performance of the financial markets and the stock exchange. Therefore, the involvement of the Swiss National bank in policy formulation is linked to the different roles that it plays in defining the distribution and circulation of money in the country, investments into the economy and the monetary policies of the financial institutions in the country.
Policymaking function
The Swiss National Bank has had significant results from the monetary policies that it has established in the country. According to Kotarski & Tkalec (2019), the SNB has been integral in the creation of policies that influence the interest rates as well as the liquidity of the money markets in the country. The mandate of the SNB is to enhance price stability in consideration of the economic developments in the country (Tomioa & Valletb, n.d.). A key argument has been the focus on the Swiss National bank to prioritize the best interests of the country (Hüning, 2019). These are vital approaches that enhance the outcomes of the country’s economic performance.
Price stability is a significant determiner for growth in a country. Weber (2019) posts that the effects of inflation lead to an impairment of the economic security of the county. As such, there is a need to establish policies that will limit the instances of inflation from price instability. Maintenance of the stability of prices facilitates the existence of the perfect environment that promotes economic development (Matyja, 2020). There are considerable elements that define the impact of the stability of prices in the economy. A key factor is the usefulness of monetary policies that control price stability. Hüning (2019) notes that such systems are only relevant for medium and long term goals. Short term price changes cannot be considered in the design and establishment of monetary policies.
An essential element in the monetary policies by SNB is the mode of operation and implementation of these policies. For instance, the governing board provides the guidelines for every quarter based on different considerations of the local markets (Hampl & Havranek, 2020). The operation of the SNB, through the board, is based on the events that shape the markets and the bank often reacts to every change in the economy. Increased demand and fluctuations are some of the significant events that would require a response from the Swiss National Bank (Hüning, 2019). However, the current rates remain unchanged despite the spread of the impacts of the COVID-19 pandemic (Matyja, 2020). One of the recent policies involved the maintenance of the interest rates as a result of weaker foreign prospects and the increased strength of the local currency (Weber, 2019).
The SNB relies on diverse instruments in implementing its monetary policies. For instance, Ljubaj (2020) notes that repo transactions, interest rates on sight deposits and buying of foreign currency are some of the conventional instruments employed by the SNB. Open market operations facilitate repo transactions and as such, enhance the liquidity of the markets (Bacchetta et al., 2019). These instruments have been successfully implemented in the country, and the success of the monetary policies in the country are tied to the impacts of these instruments in the implementation of the financial procedures.
The Swiss National bank is a critical financial institution that facilitates the running of the Swiss economy. It plays a pivotal role through the different policies that it implements in the country. Considering the functions that the SNB performs in the country, its actions must define the economy of the country. Reliance on the different instruments provides the bank with the means of enhancing the implementation of its policies.