There’s no room for economic growth and prosperity if people don’t trust in money. One of the roles of central banks is to safeguard that trust, as Andréa M. Maechler, member of the Governing Board, Swiss National Bank, explained in her keynote speech at OWP.
At this year’s Lausanne edition of Orchestrating Winning Performance (OWP), IMD’s signature program, Andréa M. Maechler, member of the Governing Board at Swiss National Bank (SNB), delivered a keynote session that focused on the mandate of central banks and its importance to the process of generating trust in money.
“People’s trust in money is a fundamental precondition for economic growth and prosperity,” says Maechler “This trust is a product of a complex ecosystem: it is affected by political stability, the strength of legal and regulatory frameworks, a sound fiscal policy. But, at the end of the day, it is by fulfilling their mandate that central banks do ensure such trust.”
This mandate hinges on three fundamental pillars: price stability, financial stability, and a functioning payment system.
Price stability
Keeping prices stable is at the core of sustainable growth, says Maechler, contextualizing the current inflation cycle as “global and broad-based”.
After a long period of very low inflation things changed due to a series of major factors. Dominant was the COVID-19 pandemic, causing disruptions to global supply chains, etc. The world’s economy is currently in the process of battling back from the height of that effect.
“The important thing to understand about inflation is that it is not only about a number, but an underlying dynamic. It is the pulse of the economy – and it’s that dynamic that changed substantially recently,” says Maechler.
Financial stability
An important aspect of the role performed by the SNB was recently in the spotlight in the context of the Credit Suisse crises and the following merger with UBS: that of lender of last resort.
Maechler elaborated on what the purpose of that instrument is: “The idea is not to bail out institutions, but to prevent widespread damage to the financial system. To avoid an excessive loss that triggers a series of fire sales that spread across institutions and eventually hits the sound and healthy ones. This is what we can stop using the designated instruments we have by providing liquidity.”
Payment systems
The advent of new technologies carries the potential to fundamentally change – in fact, it’s already changing – people’s relationship with money. According to Maechler, it’s a cautious balance between embracing technology, which is inevitable, but not at the expense of jeopardizing trust in money.
