SCHWEIZERISCHE NATIONAL BANK
BANQUE NATIONALE SUISSE
BANCA NAZIONALE SVIZZERA

Functions
Instruments
Organisation

Published by:

Swiss National Bank Secretariat General
CH-8022 Zurich 8th, revised edition
Printed in 1993

1 Mandate

A well organised, stable monetary system is one of the prerequisites for a prosperous economy. Experience shows that the creation of money must not be left to market forces but has to be regulated by a public body. This task is performed by the central banks.

The central banks of most European countries have developed from the former banks of issue; upon being established these were entrusted with the exercise of the note-issuing monopoly and the adjustment of note circulation to the needs of commerce. At that time, however, gold still occupied a central position in the monetary system, and bank notes were merely regarded as substitute money. Nowadays, on the other hand, the money created by the central banks in the form of bank notes and giro balances plays the leading role.

Main objective of central bank policy

The central bank of the Swiss Confederation is the Swiss National Bank, which started business in 1907. It deals mainly with the banks, acting as the Òbank of banksÓ, and with various Federal agencies, in its capacity as the Confederation's bank. The National Bank's chief function, according to Article 39 of the Federal Constitution, is Òto regulate the country's money circulation, to facilitate payment transactions and to pursue a credit and monetary policy serving the interests of the country as a wholeÓ. This formulation also appears in the National Bank Law; what is meant by the Òinterests of the country as a wholeÓ is not explained. The article of the Federal Constitution providing for the regulation of economic activity, introduced only in 1978, defines the aims of the Confederation's counter-cyclical policy as Òbalanced development of economic activity, especially... the prevention and combating of unemployment and inflationÓ .

Price level stability is important particularly because (relative) prices in our market-economy system govern the production and consumption of individual goods. Changes in the price level are liable to give misleading signals and lead to expensive mistakes in planning and investment. For the National Bank the prevention and combating of inflation is of special significance, because protracted changes in the price level are, as a rule, due to a malfunctioning of the monetary system.

2 The concept of monetary policy

From a system of fixed exchange rates...

Until the beginning of the 1970s fixed exchange rates existed, in principle, between most currencies - in earlier years by virtue of the gold standard and after the Second World War by virtue of the gold exchange standard in accordance with the rules of the International Monetary Fund. The central bank of a country had to regulate the money supply in such a way as to ensure that the exchange rate of the country's own currency remained constant in relation to gold or to the key currency usually the U.S. dollar. This system helped to maintain fixed exchange rates and facilitated the international exchange of goods. At the same time, inflation and deflation tended to be transferred internationally under this system without any individual country being able to protect itself adequately against these effects.

...to autonomous monetary policies

When, in 1971, the United States put an end to the convertibility of the dollar into gold, the pressure of inflation led to a collapse of the system of fixed exchange rates within less than two years. The abolition of fixed exchange rates afforded the National Bank the possibility of steering the money supply in accordance with the needs of the Swiss economy. It acted on the assumption that, at least in the longer term, there is a close correlation between the money supply and the development of the price level. Accelerated expansion of the money supply as a rule leads to a rise in inflation while a slowdown in the growth of the money supply has the effect of curbing inflation. The price level does not, however, react immediately to changes in the money supply; the time lag is considerable - in Switzerland it is two to three years.

Money supply targets as a guideline

Since the exchange rate constraint has been lifted the National Bank has been orienting its policy to money supply targets. In this way it not only creates a framework for its own activity in the money and financial markets, but also provides a guideline to the public, thus taking account of the fact that economic development is considerably influenced by the expectations of enterprises and households. Initially the money supply target was fixed at the end of every year for the following year. In the first few years it was oriented to the money supply M (Note and coin circulation plus deposits of domestic non-bands at banks and on postal checking accounts) and later to the monetary base ( Note circulation plus the banksÕ sight deposits at the National Bank). At the end of 1990, the National Bank abandoned its practice of fixing a money supply target for the following calendar year. Nevertheless, it continues to aim at a money supply growth that will guarantee a stable price level. Based on National Bank studies, this should be achieved when, in the medium-term average, the monetary base expands by approximately 1% per year. In addition, the National Bank keeps the markets and the public informed of its short-term monetary policy by announcing every quarter how it expects the monetary base to develop in the course of the following three months.

Technically, the National Bank can expand (narrow) the monetary base at virtually any time and to any desired degree by purchasing (selling) domestic or foreign assets and by granting (or reducing the volume of) credits. If, in actual practice, the National Bank did not always achieve its monetary targets, this is due to the fact that it was willing to accept deviations from the original targets in the case of external disruptions. Thus the National Bank has repeatedly reacted to extreme exchange rate fluctuations or to a changing demand for liquidity. A case in point is the massive expansion in the supply of money in autumn 1978, when the Swiss franc threatened to soar far beyond an economically justifiable level. Another example is the reduction in the supply of money in the years 1988 and 1989, when the banks' demand for sight deposits fell markedly due to the changed liquidity requirements and the introduction of SIC( Electronic system for interbank payments, Swiss Interbank Clearing).

Exchange rates and employment considered only in case of serious disruptions

The National Bank thus bases on the assumption that a short-term monetary policy presupposes a certain degree of flexibility. Rigidly adhering to money supply targets could well lead to undesirable exchange rate volatility in Switzerland, a small country with a strong international involvement. However, considerable restraint is required to smooth such fluctuations. Not every change in the exchange rate calls for an adjustment of monetary policy. This depends on the factors that trigger the exchange rate change in a specific case. Since it is frequently not possible to determine these factors and to quantify their effects early enough, the National Bank must refrain from reacting to minor disruptions. On the contrary, it must reserve deviations from the envisaged money supply expansion for special situations. Otherwise the result might well be a policy oriented to the very short term which would lastly lead to less, rather than more stability.

3 The central bank's instruments

1 Instruments for controlling the monetary base

Operations for influencing the monetary base

As has been mentioned, the National Bank influences the development of the monetary base by buying or selling assets or by granting or not renewing credits. The operations which the National Bank is allowed to carry out in order to influence the monetary base are enumerated in the National Bank Law. The following are at present of practical significance:

the purchase and sale of foreign currencies
the conclusion of foreign-currency swaps
open market operations in money market debt register claims
the purchase and sale of securities
the granting of advances against securities
(Lombard advances).

In the case of the first four of the above-mentioned possibilities the initiative for carrying out a transaction lies with the National Bank; in the case of lending against securities, the National Bank fixes the terms and leaves the initiative to the commercial banks. The kind of transactions the National Bank carries out in order to achieve its objectives is of secondary importance from the point of view of monetary policy: crucial for the influence it has on inflation, exchange rates and the level of interest rates is the development of the money supply.

Foreign exchange operations

In Switzerland, foreign exchange operations have for a long time been the most important factor determining the development of the monetary base and hence of the money supply. Previously this was a direct consequence of the system which was based on the gold exchange standard. At that time, the National Bank fulfilled its obligation to keep the Swiss franc at its gold parity in that it prevented its appreciation by buying dollars against francs and thus increasing the money supply in Switzerland. As long as the dollar was still convertible into gold (officially until 1971) the National Bank exchanged the newly acquired dollars for gold at the U.S. Treasury. Its modest dollar reserve, held for practical reasons, was invested on an interest-bearing basis in the American money market. Since 1971, the dollars purchased in the market have been kept in the National Bank's portfolio in the form of U.S. money market investments. The Bank also holds limited amounts of claims in other currencies.

Spot exchange transactions

Until about the mid-seventies the National Bank engaged mainly in spot transactions. It thus bought the dollars offered to it by the banks outright and invested them in an appropriate manner in accordance with the legal provisions. In recent years it only concluded spot transactions in connection with its sporadic interventions in the foreign exchange market or for commercial purposes.

Currency swaps

A swap is a combination of a spot transaction and a forward transaction. The National Bank completes swaps against dollars. In case of a liquidity swap it buys dollars against Swiss francs from commercial banks for a limited period. At the end of the period the transaction is reversed at a rate agreed upon in advance. In case of a mopping-up swap the National Bank in the same way temporarily buys Swiss francs against dollars. As there is a broad dollar market in Switzerland, swap transactions, even involving large amounts, can be carried out at any time. Moreover, they are very flexibly manageable with regard to maturities and rates. The National Bank normally selects maturities of between one week and six months. It fixes the terms based on market rates.

Currency swaps came into use in the mid-seventies in order to bridge seasonal fluctuations in the demand for central bank money. They served chiefly to meet the banks' additional liquidity needs at the month-ends (end-of-month financing). Subsequently, currency swaps evolved into clearly the most important instrument for controlling the monetary base. As fluctuations in the banks' demand for liquidity have declined considerably since then, seasonal financing has lost in significance; consequently swaps are usually renewed at maturity.

Open market operations in money market debt register claims

An open market operation is the purchase or sale of securities and other claims in the money and capital markets by the central bank. The National Bank's open market operations are subject to relatively narrow limits for want of suitable securities. In recent years the Federal Government has considerably increased its short-term debts by issuing money market debt register claims. This provided the National Bank with the opportunity to conduct limited open market operations in debt register claims. The SNB conducts open market operations primarily for controlling the money market in the short term. By means of swaps and through the purchase and sale of debt register claims it can, in the short term, provide the market with liquidity or drain reserves out of the market. Usually the National Bank transacts liquidity swaps, i.e. it buys debt register claims and sells them forward at the same time. Maturities normally range between one and seven days. Transactions are concluded at market interest rates.

Purchase and sale of securities

In earlier years, transactions carried out by the National Bank in the bond market were, as a rule, designed to moderate excessive fluctuations in interest rates. Since 1982, the National Bank has steadily enlarged its bond portfolio through regular purchases. In this way, it is able, on the one hand, to achieve a broader diversification of its assets. On the other, it is thus creating the proper conditions for a more active open market policy.

Advances against securities

Advances against securities imply that the debtor deposits certain securities as collateral. After the required collateral has been provided, the National Bank fixes a Lombard loan limit for the respective bank. If a bank is in need of liquidity it may borrow on collateral on its own initiative up to the limit fixed. Lombard loans should be used only for short periods in order to tide over unforeseen liquidity shortages.

Lombard loans are extended at the official Lombard rate. As from May 1989 this rate has been calculated on a daily basis and since December 1989 it has exceeded the market rate for call money by two percentage points.

Discounting

The National Bank provides discount credits by buying securities before they mature and deducting an interim interest charge (discount) for the remainder of the maturity period. The interest rate applied is the discount rate fixed by the National Bank. The discounted securities are held in the National Bank's portfolio until maturity and are then presented for payment.

Discounting business has dwindled into virtual insignificance in recent years. The SNB is not obliged to grant discount credits. It retains the right to discount securities in special circumstances in which it is willing to extend credit to the banks on a broad basis.

Minimum reserves

Unlike the above-mentioned instruments, which permit the National Bank to influence the money supply by means of purchases or sales, the imposition of a minimum-reserve requirement is a sovereign act. The National Bank can call in from the banks, and release again, non-interest-bearing deposits (minimum reserves) in order to reduce or increase the volume of central bank money. The use of this instrument has, however, been discontinued since 1977, as from then on the same purpose has been achieved more easily and flexibly by means of foreign exchange operations.

2 Other instruments

General remarks

Aside from the various means of influencing the money supply, there are also a number of powers mainly related to the capital market and the flow of funds into and out of Switzerland. While implementation of the measures in question is the responsibility of the National Bank, the power to order them lies partly with the Federal Government. Restrictions can be introduced with regard to public issues by domestic borrowers, capital export transactions, the inflow of foreign funds and the fixing of interest rates on the medium-term notes (Kassenobligationen) issued by the banks.

These measures were devised during the era of fixed exchange rates, when the money supply in Switzerland could not be autonomously controlled. At that time these restrictions were periodically imposed in order to counter undesirable movements of interest rates or of the National Bank's foreign exchange reserves and hence of the amount of money provided by it. In the first few years of flexible exchange rates stringent measures were adopted in particular to restrict the inflow of funds from abroad. It was found, however, that such action, while it did in fact put a stop to certain transactions, failed to curb the demand for and appreciation of the Swiss franc. It also became evident that exerting an influence on individual interest rates by administrative measures usually has considerable disadvantages. The instruments mentioned have therefore lost much of their significance. In so far as they are still employed, they are used with a great deal of restraint.

Authorisation requirements for capital exports

The banks and bank-like finance companies are required to notify the National Bank before they issue foreign bonds and medium-term bonds and notes of foreign borrowers or grant credits to nonresidents if the amount involved is no less than ten million Swiss francs and the maturity no less than twelve months. The National Bank can refuse to authorise such operations or attach certain conditions to them if the exchange rate the movement of interest rates or the country's economic interests warrant this.

These conditions are set forth in an instruction sheet. While in earlier years it contained a set of rules, since April 1993 only one regulation has applied, namely that Swiss franc issuing business must be lead managed by a bank subject to the Swiss (and Liechtenstein) Banking Law, i.e. domiciled in Switzerland (lead manager rule). In this way the SNB ensures that it receives the necessary information on Swiss franc issuing business of foreign borrowers.

Interest on medium-term notes (Kassenobligationen)

Banks with a balance sheet total in excess of 20 million Swiss francs are required to notify the National Bank in advance of any proposed increase in interest rates on their medium-term notes (Kassenobligationen). The National Bank can try to induce the respective banks to abstain from introducing the planned increase. Since the summer of 1981 the National Bank has refrained from fixing maximum rates, and it does not, as a rule, raise any objections to an increase in these rates.

3 International co-operation

The foreign influences to which a currency may be subjected induced the central banks to co-operate with one another at an early stage. The National Bank has on many occasions participated both in actions taken to support individual currencies and in multilateral arrangements in the interest of the international monetary system. Switzerland joined the International Monetary Fund (IMF) and the World Bank group in 1992. The financial obligations arising from IMF membership are fulfilled by the National Bank.

In 1964 Switzerland had already associated itself with the General Arrangements to Borrow (GAB) of the IMF, thus gaining observer status at meetings of the so-called Group of Ten of the major industrialised countries. At the end of 1983, when the GAB were in the process of being extended, Switzerland decided to accede to the GAB and thereby became a full-fledged member of the Group of Ten. The National Bank is the institution participating in the GAB; it also finances any credits of the IMF within the framework of the GAB.

The institutional framework for most of the National Bank's international actions is, however, provided by the Bank for International Settlements (BIS) in Basle, in which the National Bank has participated since 1930. Numerous monetary assistance credits have been negotiated there, and some of them have been granted by the BIS with the guarantee of the participating central banks. For medium-term support credits, which are not allowed by the National Bank Law, there is a special legal basis: the National Bank finances the credits and the Confederation guarantees their repayment.

4 The National Bank in the payments system

Cash payments

Switzerland's monetary sovereignty is divided into the coinage prerogative and the bank note-issuing privilege. While the coinage prerogative is vested in the Confederation, the National Bank has the sole right to issue bank notes. However, the National Bank, via its network of branches, puts into circulation not only the notes but also - on behalf of the Confederation - the coins.

Note and coin is governed by the demand from the economy. Depending on the movements of the volume of cash payments, note and coin circulation shows seasonal fluctuations. It regularly increases at the end of each month and reaches its peak at the end of the year.

Cashless payments

The bulk of cashless payments is transacted via the National Bank's transfer system (National Bank giro), ÒSwiss Interbank ClearingÓ (SIC), the various interbank services and the postal giro system. The banking system's payments and postal payments transactions are linked through National Bank accounts.

National Bank giro

The National Bank keeps giro accounts for banks, public authorities, foreign central and commercial banks as well as international organisations. At the end of 1992, the total number of such accounts was 940, including 147 kept for non-resident holders.

Giro account balances are non-interest-bearing sight liabilities of the National Bank. Giro accounts are maintained free of charge and a re not subject to any fees. Services comprise processing incoming and outgoing payments, transfers involving vouchers, and cheque transactions .

SIC

SIC is an electronic interbank payments system operated on behalf of the banks by Telekurs AG, an organisation established jointly by the banks. The giro accounts of the participating banks are administered in the central SIC computer and maintained by the National Bank. A distribution network links all SIC participants to the SIC computer, enabling them to transact payments around the clock via this system.

Between June 1987 and the end of 1988 SIC was put into operation in several steps. Basically, it replaced the interbank applications Òclearing by vouchersÓ or Òclearing by data carrierÓ introduced in the fifties and seventies. In 1992, a total of 64 million payments to the tune of approximately 33 trillion Swiss francs were processed via SIC by the 162 banking institutions linked to the system.

Interbank services

Interbank services such as the exchange of data carriers, cheque clearing and settlement of securities transactions, which are provided by various joint organisations of the banks, supplement the National Bank giro and SIC. The claims resulting from the processing of these interbank payments are settled via the participants' giro accounts at the National Bank.

5 Relations with the Confederation

No direct subordination to the political authorities

The central bank is the only institution which can autonomously create new money. As it performs a public function, it must be subject to supervision by the political authorities. This supervision should not, however, lead to the National Bank's being made directly subordinate to the political authorities since there would then be a danger of the central bank's being misused for the purpose of direct or indirect financing of public expenditure. The experience of numerous countries has shown that this is not merely a theoretical danger. Consequently, of the two possibilities which the Constitution offers for the administration of the note-issuing monopoly (state bank or joint-stock bank), the Swiss legislators chose the one which gives the bank of issue a greater degree of independence within the national political structure.

The National Bank is therefore constituted in the form of a joint-stock bank which is administered with the co-operation and under the supervision of the Confederation. The National Bank Law assigns to the Federal Government a number of important powers to approve decisions and elect candidates, which primarily give it an influence over the composition of the Bank's authorities and management. The main sanctioning powers held by the Federal Government are that of approving the annual report and annual accounts before their publication and before their adoption by the annual general meeting and that of sanctioning the most important regulations issued by the Bank Council.

Co-ordination of measures

The Confederation's influence over the National Bank's policy is governed mainly by Article 2, section 2 of the National Bank Law. This states that the Federal Government and the National Bank must inform each other of their intentions before taking economic and monetary policy decisions of major importance and that they must co-ordinate their measures. Formally this co-ordination takes place at periodic meetings between the Federal Government's Delegation for General Economic Policy and the National Bank's Governing Board. Furthermore, the Federal Government puts forward its views on the National Bank's policy in the course of the frequent informal contacts between its members - especially the head of the Finance Department- and members of the Bank's Governing Board.

Banker of the Confederation

The Swiss National Bank also acts as the Confederation's banker. It takes care of the Federal Government's domestic and foreign payments, the collection of commercial bills and cheques and the administration of securities and valuables. In addition, it co-operates in the investment of Federal funds and the issuing of Federal bonds.

The Confederation's domestic and foreign payments transactions are carried out via National Bank giro accounts. The Bank can meet temporary cash requirements of the Federal Government - such as are liable to occur, in particular, owing to an irregular inflow of revenue - against the pledging of securities. On the other hand, the automatic financing of budget deficits by means of central bank credits is precluded by law. Co-operation in the investment of Federal funds - which is governed by an agreement between the Federal Finance Administration and the National Bank- is of particular interest to the Bank because the way in which the Government manages its current resources influences the liquidity of the market. The National Bank's co-operation in the issuing of bonds, treasury bonds and money market claims is of a technical and advisory nature. The National Bank also acts as a payments office for coupons and repayments of government bonds.

6 Structure and organisation

Foundation and legal form

The National Bank was founded by virtue of the Swiss National Bank Law, which entered into force on 16 January 1906. The proposal to establish a state bank had previously been rejected by the people. Business was started on 20 June 1907.

The Swiss National Bank is a joint-stock company governed by special provisions of Federal law. It is administered with the co-operation and under the supervision of the Confederation in accordance with the provisions of the National Bank Law. Its shares are registered shares and are listed on the stock exchange. The right to hold shares is restricted to Swiss citizens, Swiss public corporations, Swiss general partnerships and limited partnerships as well as to legal entities whose main establishment is in Switzerland. Approximately 37% of the (half paid-up) capital of 50 million Swiss francs is held by private shareholders and 63% by public shareholders (cantons, cantonal banks, etc.). The Federal Government does not hold any shares.

Distribution of profits

The rules governing the distribution of profits are as follows. Out of the net profit as shown in the Profit and Loss Account, first of all an amount which may not exceed 2% of the share capital is appropriated to a reserve fund; a dividend not exceeding 6% of the paid-up capital is then paid and the cantons receive an amount of 80 centimes per head of the population. Of the remainder, two-thirds and one-third respectively are allotted to the cantons and the Confederation. For several decades, however, no allotment of such a ÒremainderÓ has taken place as the earnings have been used chiefly for accumulating reserves to cover exchange risks and for covering currency losses on foreign exchange reserves. Indirectly these provisions have served to increase the National Bank's foreign exchange reserves.

While profit distribution is laid down in detail in the law, no regulations existed for calculating the net profit and the reserves required from an operational and economic point of view. At the beginning of 1992, the Federal Government and the National Bank agreed on a concept with respect to this question. This provides for an augmentation of future reserves so as to enable unsecured currency reserves to grow at the same rate as nominal gross national product. Any surplus profit will in principle be available for an additional distribution to the Confederation and the cantons. To provide for a certain amount of continuity, the annual distribution is limited to 600 million Swiss francs. A first distribution in line with this procedure was made at the beginning of 1993, based on the 1991 annual profit.

Geographical structure

The National Bank has its legal and administrative seat in Berne; the seat of the Governing Board is in Zurich. Moreover, the Bank has eight branches, and 20 agencies are operated by cantonal banks. The National Bank also has an extensive network of banking correspondents in Switzerland, which serve as agents for local payment transactions.

General Meeting of Shareholders and bank authorities

The Swiss National Bank's supervisory and controlling bodies are the General Meeting of Shareholders, the Bank Council, the Bank Committee, the Local Committees and the Auditing Committee.

The Ordinary General Meeting is held once a year, as a rule in April. Owing to the Bank's public mandate, the powers of the General Meeting are not as extensive as in the case of ordinary joint-stock companies.

The Bank Council's main function is the general supervision of the progress and conduct of the Bank's business. Its quarterly meetings provide the Governing Board with the opportunity of elaborating and justifying its policy in detail and engaging in a valuable exchange of views. The Bank Council consists of forty members representing the various sectors of the economy and the different regions. Fifteen of these forty members are elected by the General Meeting and twenty-five, including the president and vice-president, by the Federal Government.

The Bank Committee is responsible, as a body delegated by the Bank Council, for the close supervision and control of the Bank's management.

It discusses in advance all matters to be dealt with by the Bank Council. It is also entitled to participate in the fixing of the official discount and Lombard rates. The Bank Committee consists of the president and vice-president of the Bank Council and eight members of the Bank Council appointed by it. It meets, as a rule, once a month.

The Auditing Committee inspects the Bank's annual accounts and balance sheet. It is elected by the General Meeting and consists of three members and three substitutes.

The Local Committees are assigned to the Bank's Head Offices and branches and consist of three representatives of the local business community elected by the Bank Council. They discuss the regional economic situation with the Bank's management and give advice on credit assessments.

Bank management

The National Bank's highest managing and executive body is the Governing Board. It decides - in the case of matters of basic significance, after consultation with the Federal Government- on the monetary policy to be pursued. Its three members, who are at the same time the heads of the three departments, are elected by the Federal Government on the recommendation of the Bank Council.

The local managements are responsible for the management of the branches. They conduct business in accordance with the regulations and the instructions of the Governing Board. The branch managers are appointed by the Federal Government on the recommendation of the Bank Council.

Internal organisation

The Bank is divided into three departments. Departments I and III are in Zurich and Department II is in Berne.

Department I comprises two staff divisions plus Internal Auditors. One division consists of the Economic Studies, International Monetary Relations, Banking Studies and Statistics Sections; these provide the basic information for the assessment of the situation and for decisions regarding central bank policy. The Legal and Administrative Division comprises the Legal Service, Personnel, Premises and Technical Services, and the Pension Fund.

Department II is responsible for the production and issuing of bank notes, payment transactions with correspondents in Switzerland and Liechtenstein, business with the Federal Government, central accounting, the administration of gold holdings and transactions in gold as well as for securities business.

Department III is the Bank's actual business department. It consists of two divisions, Monetary Operations, and General Processing and Informatics. The former is responsible in particular for foreign exchange transactions and for discounts and advances against securities, the latter, among other things, for payments transactions, dealings with correspondents abroad and for informatics.

The General Secretariat is under the supervision of the chairman of the Governing Board. It performs the secretariat services for the Governing Board, the Bank Council and the Bank Committee and is responsible for information and the Bank's archives. At the end of 1992, National Bank staff numbered 576 (not including part-time employees). All the Bank's officials and employees, and also the members of the bank authorities, must be Swiss citizens and resident in Switzerland.

7 Legal basis

Constitution

The basis of the Swiss currency in constitutional law is provided by Articles 38 and 39 of the Federal Constitution. Article 38 confers the minting prerogative, Article 39 the note-issuing monopoly on the Confederation. The note-issuing monopoly is either to be exercised via a separately administered state bank or to be entrusted to a central joint-stock bank which is to be administered with the participation and under the supervision of the Confederation. As mentioned at the outset, the legislative authorities decided in favour of a central joint-stock bank, which gives the issuing institution a somewhat greater degree of independence.

Further provisions of particular significance for the National Bank are Articles 31quater and 31quinquies of the Federal Constitution. Art.31quater gives the Confederation the right to draw up provisions concerning the banking system and Art.31quinquies authorises the Confederation to introduce measures to promote a balanced development of economic activity and especially to prevent and combat unemployment and inflation. Measures in the field of money and credit may, if necessary, deviate from the principle of freedom of trade and industry.

National Bank Law

The actual framework for the activity of the note-issuing institution is provided by the National Bank Law of 1953/1978. Within this Law, four groups of provisions can be distinguished:

a) Provisions of company law: the name, domicile and object of the Swiss National Bank, its share capital, the position of its shareholders, the rendering of accounts and the distribution of profits (Articles 1 to 13,25 to 27)

b) Provisions of monetary policy and foreign exchange legislation: the scope of business, central bank instruments, note issuing, the note-issuing privilege (Articles 14 to 24,66 to 78)

c) Organisational provisions: organs, the participation of and supervision by the Confederation (Articles 28 to 63)

d) Provisions regarding penalties and legal protection (Articles 64 to 65d, Articles 68a and 69).

Banking Act

The Federal Act concerning Banks and Savings Banks of 1934/1971, which is mainly designed to protect the creditors of banks, contains, in its Articles 7 to 9, provisions governing the relationship between the Swiss National Bank and the banks. Two of these articles regulate the authority of the National Bank to collect banking statistics and the authorisation requirement for capital exports by the banks. The capital export regulations are set forth in a memorandum of the National Bank.

Coinage Act

The Federal Coinage Act contains regulations on the currency and coinage. It establishes the monetary unit and confers the authority to fix the gold parity on the Federal Government. However, since the abolition of the convertibility of the U.S. dollar into gold and the transition to a system of flexible exchange rates, the only practical application of the official gold parity has been as an accounting rule for the valuation of the National Bank's gold holdings. The obligation to redeem bank notes in gold ceased to exist as far back as 1936.

Federal Decree on international monetary measures

The Federal Decree on Switzerland's co-operation in international monetary measures, first issued in 1963, authorises the Federal Government to participate in international action in support of other currencies for the purpose of preventing or remedying serious disturbances in international monetary relations. The Federal Government may entrust the granting of credits to the National Bank. In such an event, the Confederation gives the National Bank a guarantee of punctual repayment of the credits granted.

Federal Decree on the accession to the GAB of the IMF

The Federal Decree of 1983 on Switzerland's accession to the General Arrangements to Borrow (GAB) of the International Monetary Fund (IMF) designates the National Bank as the institution participating in the GAB. Credits granted by the National Bank to the IMF within the framework of the GAB are not guaranteed by the Confederation .

SwitzerlandÕs membership in the IMF and World Bank group

Switzerland's accession to the institutions of Bretton Woods ( IMF and World Bank group) is based on a Decree of the Federal Parliament of October 1991. The implementation of membership is laid down in the federal law on Switzerland's participation in the institutions of Bretton Woods. This law also specifies the terms of cooperation between the Federal Council and the National Bank with respect to Switzerland's membership in the IMF. Thus the Federal Council designates Switzerland's representatives at the IMF by agreement with the National Bank. The procedure to be followed by Switzerland for delivering statements in the IMF is laid down in an administrative agreement.

Appendix

1 Periodical publications

The return (balance sheet) appears three times monthly, on the 10th, Return 20th and last day of each month, with brief comments (German/French).

The monthly report contains a brief commentary on the National Monthly report Bank's policy and on developments in the money, capital and foreign exchange markets, together with charts and tables showing the main Swiss and international economic data (German/French). A supplement to the monthly report on banking statistics contains detailed data on the banking industry.

The quarterly bulletin (Geld, Wahrung und Konjunktur/Monnaie et conjoncture) contains the Governing Board's quarterly report to the Bank Council on the economic and monetary situation (German/French), research papers and selected addresses by National Bank staff on questions of monetary and foreign exchange policy (in the original language) and, finally, an outline of the measures adopted during the period under review. Summaries of the texts in German/French/Italian/English precede the various contributions.

The annual report gives an account of the National Bank's business activities during the past year. The report explains the monetary and foreign exchange policy pursued and contains a brief description of the development of the world economy and the course of economic activity in Switzerland. It is published annually in German and French (abridged versions in Italian and English).

'Les banques suisses' is a statistical source, with comments on developments in the Swiss banking sector. This publication is based mainly on the statistics supplied by the banks. It is published annually in summer (in German and French).