Dan AtkinsonThe Swiss can rest easy in the knowledge that their currency is in a healthy state. In the franc, they have the world’s hardest money, a by-word for stability and the preservation of wealth.
Right now, against the Euro, one ‘Swissie’ buys €0.92, whereas a year ago, on 1 October 2014, it bought €0.88 and five years ago, on 10 October 2014, it purchased €0.83.
Momentum heading upwards
Against the dollar, the franc currently buys $1.01, a little down on the $1.02 it was worth on September 30th last year and the $1.04 it bought five years ago, on October 10th 2014.
What stands out is how little the rate seems to have moved during a period of extraordinary turbulence in financial markets. But the calm on the surface disguises what the International Monetary Fund (IMF) described in June this year as “several episodes of intense appreciation owing to the Swiss franc’s reputation as a safe haven”.
Certainly, a study of the charts suggests the momentum is currently upwards. Its 12-monthly low against the euro was seen back on 8 May, at €0.88, while its current level is the 12-monthly high.
Trade US Dollar / Swiss Franc CFD
Against the dollar, its low point was $0.98 on 24 April and its 12-monthly high was on 24 August, at $1.04.
While a strong currency is generally preferable to a weak one, upward pressure does create problems for Switzerland’s exporters, as it makes their goods more expensive in foreign markets when priced in local currency. The country specialises in high-tech manufacturing, famously watches and pharmaceuticals, but also chemicals and machinery, and in financial services.
“Several policy challenges”
The Swiss National Bank has used negative interest rates to try to hold down the value of the franc thus give a lift to exporters. The success of this policy can be seen in the fact that, despite the strength of the currency, it is running a current-account surplus.
In June, in its latest Article IV health check, the IMF noted: “The Swiss economy has performed relatively well since the global financial crisis. Growth compares favourably with most other advanced countries and aggregate employment has grown robustly. The fiscal position is strong and the external trade surplus remains large and stable.”
However, it added: “Switzerland is also facing several policy challenges: low interest rates are fuelling risks in the real estate and mortgage markets; persistent subdued inflation has decreased the operational space for monetary policy; and population ageing and technological change will require further upskilling and generate new demands for public resources.”
The franc has long enjoyed an enviable reputation for solidity and its anti-inflationary credentials are second to none. In the days before the 1999 launch of the euro, the Swiss franc was the only currency in the world that made Germany’s might mark look soft by comparison.
After 1971, when the dollar broke its link to gold, it was suggested the franc, which was then partly backed by bullion, could become the world's new anchor currency. But the Swiss ruled this out, not wishing to shoulder the responsibilities involved and wanting to continue to manage the franc in Switzerland’s national interest.
Presumably, the Berne authorities will be relieved to know that the franc will not be among the currencies being used to back Facebook’s new Libra cryptocurrency.
