My 5 Points program for the Swiss National Bank

April 9, 2024

Dear Federal Councillors,

I am a candidate to succeed Mr. Thomas Jordan as the President of the Swiss National Bank, and I have the honor to present in 5 points the reforms that I would like to implement if appointed to this position.

I – Expansion of the Executive Board from 3 to 5 members and adoption of a regulation establishing the minimum presence of 2 women on this body.

II – Establishment of a Swiss sovereign wealth fund whose primary objectives will include social and educational initiatives, support for our healthcare system, as well as substantial investments in all aspects of Artificial Intelligence, research, and existing or emerging businesses in this sector.

The Swiss National Bank can and should contribute significantly to stimulating these technologies. AI will generate convergences within our economy resulting in potentially exponential growth.

III – MONETARY POLICY:

Past financial crises have revealed the limitations when interest rates are reduced to zero or turn negative, as was the case in Switzerland. I am not certain that we will be able to address the inevitable crises of the future without refining our arsenal.

Across the world, the various approaches of central banks no longer inspire confidence. The risks in terms of inflation control are significant, as are the staggering amounts that the Central Bank must spend, expanding its balance sheet, to effectively breach the zero lower bound, all in a context of increasingly massive financial markets that risk becoming illiquid in the event of severe turmoil. While it is indeed possible to go even lower into negative rates, it is very difficult for an economy and its population to emerge unscathed from a somewhat unnatural situation where the cost of money is negative.

I suggest a new approach which involves implementing a dual interest rate regime. As we know, a Central Bank must choose to benefit either savers or borrowers by respectively increasing or decreasing its rate. The duality of the interest rate precisely allows relieving both categories simultaneously, by providing liquidity at one price to borrowers, while compensating savers at another. The Central Bank will also increase – significantly if necessary – the remuneration received by banks on their reserves, with the onus on them to pass on this benefit to their clients.

One fact: monetary stimulus is no longer constrained by any practical limit with the introduction of dual interest rates.

One certainty: we will no longer be able to manage the upcoming crises, whether economic, geopolitical, or security-related, with the deadly instrument of negative rates that highly penalize depositors, weaken the banking and financial sector, and encourage cash hoarding. Moreover, various Quantitative Easing policies have led to irrealistic stock market surges and outrageous inequalities.

The splitting of the interest rate is not a revolutionary measure; it simply requires using a traditional instrument of the Central Bank more effectively, avoiding the collateral effects we have faced in recent years. Ultimately, it acts by transferring wealth to the private sector, stimulating the economy, effectively combating the liquidity trap, and painlessly breaching the zero lower bound. In essence, it bestows unlimited power upon monetary policy.

IV – Immediate suspension of the printing of the 1,000 franc note, which precisely weakens our monetary policy. Existing banknotes remain valid.

V – Protection measure for our export companies through the guarantee of a minimum exchange rate of Euro/CHF at 0.95 (equivalent floor to be defined for other currencies). This will involve compensating each exporting company for the difference if the market rate falls below 0.95.

During the Covid crisis and the implementation of emergency measures, Switzerland demonstrated its ability to implement such measures. Therefore, it is through the banking system that each affected company will make its declaration. Conversely, it will obviously be necessary to provide for a reverse compensation to be paid by importing companies if they benefit from a more favorable rate than 0.95.

I sincerely hope that these lines and proposals will capture your attention.
In anticipation of your response, please accept, Dear Federal Councillors, the expression of my highest consideration.

Michel Santi

(Copy to the Swiss National Bank)