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Swiss franc remains haven of stability in a troubled world

By Dan Atkinson

12:36, 24 October 2018

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Switzerland’s mighty money, the strongest currency in the world, is once more providing a safe haven in turbulent times.

While financial markets worldwide suffer volatility and uncertainty, the Swiss franc has held rock-steady against other major currencies during the past 12 months.

Against the dollar, it ended the period where it started, at $1.005, with a peak during the year of $1.08 and a trough of $0.99.

Its value against the euro was €0.86 a year ago and €0.88 now, peaking during the year at €0.89 and touching bottom at €0.83.

IMF seal of approval

And against sterling, it stood at £0.79 a year ago, its peak for the period, and at £0.77 now, with a trough during the year of £0.76.

Indeed, so buoyant is the franc - the last European currency to use the denomination since Belgium and France joined the euro – that its popularity among traders and investors can be a problem, not least for Switzerland’s exporters, whose goods become more expensive abroad when the currency appreciates.

In its most recent Article IV annual health check, in June, to which most member-countries are subject, the International Monetary Fund (IMF) welcomed some recent depreciation. “The better global environment had – until recently – halted safe-haven appreciation pressures, and the franc weakened by around 8% in real, effective terms during mid-2017 to April 2018,” it wrote.

The reference to real terms indicates inflation has been taken into account, while the “effective” rate measures the franc against a basket of major currencies.


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Underpinning the franc’s strength are the stability of Switzerland’s banking system, the country’s good historical record of controlling excessive inflation and the robust state of its economy. The IMF noted: “After a subdued start to 2017, GDP growth accelerated to 1.1% last year, and the positive momentum continued in the first quarter of 2018.”

It added: “Policies adopted in recent years have aided the recovery and mitigated risks. The two-pronged approach to monetary policy – combining a negative interest rate with foreign currency purchases – has supported the return of modest inflation and the recovery of growth.”

Modest international role

The IMF “commended the Swiss authorities for skilfully navigating the economy through challenging times”.

The Swiss franc’s status as a secure store of value is rivalled only by that of gold. In fact, the two were linked until 2000, with the currency issue backed 40% by bullion. This effectively made Switzerland the last advanced country to be on the gold standard.

So steady has the franc proved that there have been suggestions it ought to become the world’s anchor currency, replacing the dollar. But Switzerland has rejected such suggestions, having no wish to shoulder the burdens that come with custodianship of a reserve currency.

These include having a large chunk of the total currency issue in foreign hands, either central banks or non-Swiss corporations. This, in turn, would weaken the control of the Swiss authorities.

Perhaps ironically, given Swiss determination to keep the franc as a national currency, it does have an international role, albeit a modest one. The franc is legal tender not only in Switzerland but also in Liechtenstein and in Campione d’Italia, an exclave of Italy that is surrounded by Swiss territory.

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