Swiss Franc pillar of solidity in the global economy
The Swiss franc is a pillar of Swiss economic stability and its value has steadily increased in recent decades. This trend is not expected to change significantly in the future.
The Swiss franc (CHF) is a currency with several characteristics and advantages that contribute to its attractiveness. Switzerland’s economic stability, its financial policy and low inflation contribute to investor confidence. The Swiss banking system is known for its soundness and reputation for secrecy, and international investors regard Swiss financial institutions as reliable and well-regulated.
The strong franc reflects the outstanding competitiveness of the Swiss economy. Over time, the Alpine nation has established a reputation for excellence in the production of high-quality goods and services. Swiss goods, paid for in francs on the global market, see their demand grow as exports increase. This virtuous circle contributes to the strength of the currency.
With low government debt levels compared to other nations, investors, especially during periods of global uncertainty, find refuge in the certainty offered by the Swiss currency as a ‘safe haven currency’ by increasing its demand. Its stability during global economic turmoil has helped cement this reputation as a safe haven.
Switzerland’s moderate inflation, lower than the international average, makes investments in Swiss francs more attractive.
Over the years, the Swiss franc has tended to increase in value against other currencies.
The Swiss franc from one record to another
A bit of history
The Swiss franc in German Schweizer Franken, in French franc suisse, in Romansh franc svizzer is the currency of Switzerland, also used in the Principality of Liechtenstein, in the Italian enclave of Campione d’Italia (together with the euro) and in the German enclave of Büsingen am Hochrhein one of the longest circulating currencies.
Until 1798, the issuance of money was the responsibility of the cantons, then with the creation of the Helvetic Republic by the French in 1850, a new currency was created under the name of the Swiss franc, the value of which was set at parity with the French franc and replaced the different currencies of the individual cantons.
Switzerland was one of the founding members of the Latin Monetary Union in 1865. In 1907, the right to issue banknotes passed to the newly founded Swiss National Bank.
Over the next century, events such as Germany’s hyperinflation, the outbreak of World War II, and the Confederation’s non-membership of the Bretton Woods agreements in 1944, caused the Swiss franc to gain in value, making Switzerland a safe haven for foreign investors.
Today, the Swiss franc is the sixth most traded currency in the world.
Historical development of the Swiss Franc-Euro exchange rate
The CHF/EUR exchange rate saw the light of day in 1999, at the time of the introduction of the euro on the financial markets. 1 January of that year marked the start of trading in this pair, anticipating by three years the physical introduction of the euro in the eurozone countries in 2002. The exchange rate between the two currencies has changed considerably over the years: in 2007, the euro reached its all-time high against the franc, trading at 1.71 francs to one euro. This period marked the era of the ‘super-euro’, when it was expected to replace the dollar as the world’s reference currency. However, the global economic crisis and the European sovereign debt crisis overturned this perspective. Today, the exchange rate between the two currencies fluctuates constantly below the threshold of 0.95 euro to one franc and has reached an all-time low of 0.9449 euro to one franc also due to the tensions in the Middle East.
Historical development of the Swiss Franc – Dollar exchange rate
The dollar became the currency of the United States in 1785 and was linked to the value of silver and gold. With the ‘Mint Act’ of 1792, US dollars entered the international financial world, adopting the decimal system on a global scale for the first time. During the American Civil War, the government introduced ‘demand notes’ or ‘greenbacks’ in 1861, followed by ‘United States notes’. These initiatives were an attempt to stabilise the economy during a tumultuous period. The crisis of 1907 led to the establishment of the Federal Reserve System in 1913, aimed at preventing further financial collapses. In 1914, one US dollar was worth more than five francs. At the end of the Second World War, the US dollar consolidated its position thanks to the Bretton Woods agreements of 1944 to which Switzerland initially did not adhere. In the 1960s, the gold-based system lost its symbolic significance and in 1971, President Richard Nixon announced the end of convertibility, ushering in the era of fiat currency.
The introduction of the floating exchange rate created an instability that marked the following decade with oil shocks and unprecedented interest rates and paved the way for the globalisation of finance. Switzerland was the first country to let its exchange rate float freely. In the 1980s, the US adopted a ‘strong dollar’ policy, raising interest rates to support the value of the dollar. The birth of the Euro in 1999 reduced the dependence on the US dollar in international trade transactions. In the early 1990s, the CHF/USD exchange rate experienced fluctuations related to events such as German reunification and the emergence of the euro in the financial markets. In the 2000s, during the financial crisis and the dotcom bubble, the Swiss franc appreciated strongly against the dollar. In 2015, the Swiss National Bank abolished the floor rate of 1.20 CHF/USD following which the two currencies settled at an exchange rate of 1:1. Starting in 2020, there was a further appreciation of the Swiss franc against the dollar, which hit an all-time low in 2023, falling to 0.85 CHF/USD.
Historical development of the Swiss Franc – British Pound Sterling exchange rate
The pound sterling (GBP), is the currency used in the United Kingdom whose name derives from ‘pound of sterling silver‘, indicating an amount equal to one pound of silver to which its value was tied. From 1880 to 1914, the exchange rate was regulated by the ‘gold standard‘ and became the main currency in international trade.
In 1914, one pound was worth 25 francs
In 2008, 1 pound exchanged for about 2.50 francs, today it costs only 1.10 francs.
Historical development of the Swiss Franc – Japanese Yen exchange rate
The yen (JPY) is the currency used in Japan and was introduced in 1872 to replace and simplify the previous monetary system that was considered too complex. Initially it was minted in gold, then switched to silver and today it is considered one of the most important currencies in the world. In Japanese it is pronounced ‘en’ which means ’round object’. In 1881, the first banknote with a portrait of Empress Jingu was printed by the Italian Edoardo Chiossone, who was hired by the Japanese government to learn banknote printing techniques. From 1949, it remained strongly linked to the US dollar. Then from 1971, when the Bretton Woods agreements were resolved, the value of the yen began to fluctuate and after the Plaza Accords of 1985 it appreciated against the dollar. Today it is one of the most important currencies in the world.
In 2022, the yen depreciated sharply: 100 JPY was trading at 0.68 CHF compared to 1.18 CHF in 2012 and the trend seems to be continuing in this direction as today it is trading at 0.59 CHF.
Disadvantages of the High Swiss Franc
A strong Swiss franc can have a negative impact on the export sector, making Swiss products more expensive for international markets and reducing competitiveness. Also for tourists from abroad, a strong Swiss franc will make Swiss stays very expensive and reduce the purchasing power of foreign guests.
Some Swiss franc deposits may also be subject to negative interest rates, which could affect savings and investments.
Perception of Switzerland abroad
Advantages of the High Swiss Franc
A strong Swiss franc can bring several advantages for the Swiss economy and its residents, but also present some challenges, especially in certain sectors.
The strength of the Swiss franc reflects the country’s economic stability and investors are attracted by the security offered by Switzerland’s economic and political stability.
A strong currency allows the Swiss National Bank (SNB) to keep interest rates low to control inflation and support economic growth.
The strength of the Swiss franc can encourage foreign investment in Switzerland, and reduce import costs by making goods and services from other countries more affordable.
For Swiss residents, a strong Swiss franc can make travelling abroad more convenient due to higher purchasing power in countries with weaker currencies, benefit from cheaper prices for international online shopping, and keep inflation levels low.
