A successful defender of price stability

One last appearance, one last monetary policy decision. Thomas Jordan lowered the key interest rate once again on Thursday. Just four days later, he will step down as President of the Swiss National Bank (SNB). This has been known since March of this year. But even though we have known it for half a year, an SNB without Thomas Jordan, or a Thomas Jordan without the SNB, takes some getting used to. Office and person almost seemed to merge for the 61-year-old thoroughbred economist.

Successful guardian of price stability

Switzerland, local companies and the population have a lot to thank Jordan for. Together with his colleagues on the SNB Board of Directors, he has pursued a prudent monetary policy over the past twelve years. The fact that Switzerland has weathered many crises better than other countries is also due to the SNB. Whether it was the consequences of the financial and euro crisis, the handling of the temporarily strong franc, the Covid pandemic or the war in Ukraine: Jordan steered the SNB with a steady hand, scandal-free and without a tendency towards activism.

One should not praise or criticise central bank heads at the time of their resignation, as many monetary policy measures only take full effect after a delay of several years. In Jordan’s case, for example, it is difficult to estimate what long-term consequences the SNB’s balance sheet, which was greatly inflated during his term of office, will have. However, one thing is already clear: Jordan has done a good job in the most important task of ensuring price stability.

Since Jordan took over the presidency of the SNB in ​​April 2012, consumer prices in Switzerland have risen by 5.8 percent. This is not price stability in the literal sense. But any complaints quickly die down when you look at Germany, for example. There, prices rose by 19 percent in the same period. In addition, inflation in Switzerland was not only lower, but also less volatile. This despite the fact that small currency areas that are particularly exposed to storms abroad often tend to experience violent fluctuations.

No fraternization with politics

However, Switzerland’s high level of price stability cannot be attributed exclusively to the SNB. Structural reasons were also important, such as Switzerland’s lower dependence on energy imports, the relatively low national debt and moderate wage growth, which helped to prevent a wage-price spiral from starting to spiral. But the SNB’s skillful balancing of interest rate increases, a nominal appreciation of the franc and targeted foreign currency sales has contributed greatly to keeping the surge in inflation low.

But Jordan was not only a successful inflation fighter. The qualified economist also had a clear regulatory compass, something that has become rare among many central banks since the outbreak of the financial crisis. He understood what the SNB’s legal mandate is – and what falls within the competence of democratically elected representatives. Accordingly, he knew about the risk when central bankers allow themselves to be harnessed to perform tasks for the government or parliament. Such fraternization always leads to an erosion of monetary policy independence.

As tempting as it may be for the vanity of a central bank chief to present himself as an all-powerful problem solver with a pithy “whatever it takes” promise, it is ultimately presumptuous and unlawful. An honest central banker knows the limits of his authority – and respects them. That was the case with Jordan, although this adherence to principles also brought him some criticism during the downfall of Credit Suisse. He did what the law required him to do – and did so with a quality that Switzerland is envious of.