“If President Trump asked you to resign, would you leave?” “No” “Don’t you think you would be legally obligated to leave?” “No” Jerome Powell, the chairman of the Fed, responded curtly when these questions were asked of him after the new election of Donald Trump. Since his first term, the American president has continued to verbally attack the leaders of the Fed. He believes he must be involved in monetary policy decisions and, as a businessman, have better instincts than the Fed’s leadership. Time will tell how Donald Trump’s new term will unfold. However, it is crystal clear that attacking a central bank is a bad idea, because who wants stable prices needs an independent central bank. We only need to look to Turkey or Venezuela to be convinced: the heads of state there have hijacked monetary policy and caused galloping inflation. Fortunately, we are far from that in Switzerland. Unless?
The Swiss National Bank (SNB) also regularly comes under political fire. An analysis of parliamentary objects tabled since 2014 shows that all parties would like to have their say on monetary policy. But it is by far the Socialist Party and the Greens who are launching the most attacks. They are at the origin of more than half of the interventions against the BNS. These relate to the use of the balance sheet, new tasks (especially in the environmental field) or the composition of the management board. It is quite ironic that politicians challenge the SNB’s competence for intelligent use of the balance sheet, while this same institution is suddenly seen as a key player in environmental issues.
An evaluation of objects dropped over time shows that attacks targeting the BNS are reactions to current events. When the SNB lifted the floor rate and introduced negative interest rates in 2015, the mandate and use of negative interest rates were suddenly questioned in Parliament. When high public spending loomed in connection with the COVID-19 pandemic, it suddenly had to be financed with funds from the National Bank. Many political actors have one objective above all: to extend their sphere of influence to monetary policy. The power of monetary policy, whose decisions impact the economy like few issues dealt with in Parliament, is just too tempting. And it is this temptation which, throughout history, has regularly led to printing money and fueling inflation.
We see that pointing the finger at the United States is exaggerated. Many political actors, especially on the left of the political spectrum, wish to exploit the BNS. However, implementing these objects would also have a negative effect on price stability in Switzerland. If the National Bank were, for example, entrusted with environmental tasks, the objective of price stability would lose its importance and the balance sheet would no longer be managed according to the principles of monetary policy. If, under political pressure, public spending were financed by the SNB, price stability would soon give way to profit maximization. The recent political dossier examines this “museum of horrors”.
A restriction of central bank independence – whether in the United States or Switzerland – would be fatal. Let us be careful not to be arrogant when we comment on Donald Trump’s attacks on the American Federal Reserve, because in Switzerland too, some people are trying to exploit monetary policy. And this is where we can act: we must loudly reject the attacks by politicians targeting the SNB.
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