Foundering faith

CENTRAL bankers have to live up to high expectations. Investors and politicians expect them to control inflation, prevent deflation, promote growth and keep the financial system healthy. The Swiss National Bank (SNB), an above-average institution, has failed at two simpler tasks: keeping its word and preventing destabilising currency moves. The lessons for the rest of the world are scary.

After three years, and without either notice or much of an explanation, the Swiss abruptly ditched their cap on the franc's value. The franc promptly surged 40 per cent against the euro before giving back more than half its gains. Investors and Swiss firms were in uproar.

The first lesson is: Never trust a central banker when he or she makes a commitment or gives guidance. The SNB was considered a reliable institution with a firm grasp on policy. After three years of relying on what it called the cornerstone of monetary policy, it let the edifice tumble. In the messed-up world of high debts, slow growth and negative rates, other central bankers can change their mind in equally disruptive ways.