Britian is ending the Libor rate, which has been at the center of a years-long rigging probe. The only problem for Switzerland? The Swiss National uses Libor to set its interest rates.
Switzerland's central bank, the Swiss National Bank, has to look for an alternative base for it monetary policy after Britain decided to end the London Interbank Offering Rate, or Libor. The rate was set up in the 1980s in order to calculate how much it would cost banks to borrow money from other banks.
It soon came to represent the benchmark underpinning billions in financial instruments, as «The Wall Street Journal» (behind paywall) eulogized after Britian's regulator said Libor would be phased out over the next five years. It is one of several rates that UBS traders manipulated; the Swiss bank paid $1.5 billion in 2012 to settle the scandal.
Less famously Libor is also the benchmark by which Swiss National Bank policymakers sets interest rates in Switzerland, which target the middle of a three-month range based on Libor.
Hunt for Options
The SNB is looking at alternatives to Libor before it goes out of circulation in 2021, the central bank told «Reuters».
«The SNB will announce in a timely way an alternative to franc Libor for its monetary policy concept. The foreseeable end of the franc Libor will have no effect on monetary policy orientation and monetary conditions,» the SNB said. It currently targets a rate between -1.25 percent and -0.25 percent.
The European Central Bank has been evaluating a Libor alternative since 2012, after the scandal surrounding Libor manipulation broke out. The central bank recently said it is considering its own money market reference rate.
