Thomas Jordan: What constitutes sound money?

Speech by Mr Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, at the Economic Conference, Progress Foundation, Zurich, 8 October 2020.

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

Ladies and gentlemen

As the title of today's event clearly states: supplying the economy with sound money is a constant challenge. I am therefore particularly pleased to have the opportunity to examine the issue of 'What constitutes sound money?' with you in more detail here. After all, as Chairman of the Governing Board of the Swiss National Bank, I represent an institution that is responsible for providing our country with sound money, a task we have performed since our foundation 113 years ago. Sound money is crucial in a society that is shaped by the division of labour and the exchange of goods and services - as has been demonstrated not least by the experience gained with a wide range of monetary orders over many centuries. Today, money is used in virtually all economic transactions. A sound monetary system is an essential prerequisite for a modern economy, for efficient trade and for social stability.

Given how significant the monetary system is, it is only right and proper that the associated developments are also the subject of regular public debate. With this conference dedicated exclusively to the issue of sound money, you are making an important contribution in this regard. Sound money is a fragile accomplishment, and is thus essentially always at threat. However, against the backdrop of the global financial crisis, concerns that our good money could turn bad have increased markedly across broad sections of society in recent years. On the one hand, this is understandable. Central banks' crisis management has led to an extraordinary expansion in money supply and interest rates are at record lows - in the past, these phenomena have often been indications of imminent inflation and thus currency depreciation. On the other hand, it is a demonstrable fact that the value of money has never been as stable as it has been in the past 20 years (cf. chart 1). Viewed from this perspective, central banks' expansionary monetary policies have simply satisfied the enormous demand for central bank money. The strength of this demand is actually testament to a high level of trust in central banks.