{"id":417041,"date":"2022-05-31T12:46:47","date_gmt":"2022-05-31T12:46:47","guid":{"rendered":"https:\/\/www.b-sharpe.com\/blog\/pourquoi-franc-suisse-monnaie-forte\/"},"modified":"2022-05-31T12:46:49","modified_gmt":"2022-05-31T12:46:49","slug":"why-swiss-franc-strong-currency","status":"publish","type":"post","link":"https:\/\/www.b-sharpe.com\/en\/blog\/why-swiss-franc-strong-currency\/","title":{"rendered":"The Swiss franc: the history of a strong currency turned safe haven"},"content":{"rendered":"\n

With a strong economy, low debt, and sizable foreign investment, today all the ingredients are there to make the Swiss franc a strong currency and a safe haven investment.<\/a><\/p>\n\n\n\n

The strength of the Swiss franc isn\u2019t new. Today\u2019s Swiss franc draws as much strength from Switzerland\u2019s economic relations with its main partners as from its history.
As a currency exchange business, b-sharpe<\/a> considers the origins of the Swiss franc\u2019s strength so you can better understand how the currency market works.<\/p>\n\n\n\n

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Exchange your money quickly and securely<\/h3>\n\n\n\n
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Learn more<\/a><\/div>\n<\/div>\n\n\n\n
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What are the differences between a strong currency and a weak currency?<\/h2>\n\n\n\n

The notion of a currency\u2019s strength is entirely relative. A currency can be strong in relation to one currency, and weak in relation to another. <\/strong><\/p>\n\n\n\n

Let\u2019s take the EUR\/CHF pair as an example (i.e. what one euro is worth after being exchanged into Swiss francs<\/a>). At the start of 2012 you would have to spend around 820 Swiss francs to buy 1000 euros \u2013 but today you would have to spend 966 Swiss francs to obtain the same amount.<\/p>\n\n\n\n

If we take it as read that we are dealing with two strong currencies here, the Swiss franc has won over the euro in the last decade with a positive exchange rate development compared to the single currency. <\/p>\n\n\n\n

\"Comparaison
Exchange rate of the EUR\/CHF currency pair over ten years.<\/em><\/figcaption><\/figure>\n\n\n\n

Let\u2019s take another example over the same period. You had to spend about $1270 to get \u20ac1000 in 2012, but today you can spend a little less, $1134 to obtain the same sum.<\/p>\n\n\n\n

\"Comparaison<\/figure>\n\n\n\n

The Swiss franc in the 20th century<\/h2>\n\n\n\n

From the 1920s to the Second World War<\/h3>\n\n\n\n

During the 1920s, European currencies collapsed one after another <\/strong>climaxing with the German mark. The victim of a period of hyperinflation in the Weimar Republic where retail prices increased from a factor of one to 750 million in the matter of a decade. In real terms, a loaf of bread that sold for 1 mark would cost 750 million marks ten years later \u2013 illustrating the currency\u2019s loss of value!

On the contrary, Swiss currency kept its safe-haven value because it maintained its gold standard, attracting increasing amounts of foreign investment. <\/p>\n\n\n\n

At the end of the 1920s, the high price of the Swiss franc didn\u2019t bode well: <\/strong>the Swiss exporter economy felt the full force of the costly Swiss franc. Unemployment affected over 20% of the active population in the middle of the 1930s.<\/p>\n\n\n\n

During the Second World War, Switzerland amassed gold stocks by selling raw materials to Germany in exchange for the precious yellow metal.<\/strong><\/p>\n\n\n\n

The Swiss franc built its solid foundations over these 25 years.<\/p>\n\n\n\n

Switzerland and the Bretton Woods agreement<\/h3>\n\n\n\n

At the end of the war, Switzerland refused to adhere to the Bretton Woods agreement  <\/strong>(which set currencies in relation to the dollar fixed to gold), but the Swiss franc remained one of the strongest currencies.<\/p>\n\n\n\n

The Bretton Woods system ended in 1971. Currencies became free-floating (i.e. currency rates were driven by supply and demand) and the Swiss economy was in good health. Foreign capital flowed into Swiss banks, although Swiss businesses, particularly the industrial sector, experienced more difficult times and unemployment increased in Switzerland.<\/p>\n\n\n\n

The 1970s petrol crisis and the financial crisis of the 1990s<\/h3>\n\n\n\n

The petrol crisis of the 1970s put an end to the Swiss National Bank\u2019s plans to suppress the growth of the Swiss franc. <\/strong>The difficult economic situation in Switzerland continued with poorly executed liquidity injections into the economy aimed at reducing the effects of the 1987 crash.<\/p>\n\n\n\n

This resulted in the construction and property sectors beginning to overheat. To counter this, the SNB increased interest rates, plunging the country\u2019s economy into a deep recession. The 1990s would end up being very difficult economically because of a delayed drop in interest rates. However, the Swiss franc remained steady against almost all other currencies.<\/strong><\/p>\n\n\n\n

The floor rate as a response to the 2008 crash<\/h3>\n\n\n\n

To deal with the fallout from the 2008 crash, in 2010 the SNB decided to lower interest rates to zero to protect the Swiss banking system and flood the market with liquidity.<\/p>\n\n\n\n

Despite this, the Swiss franc retained its role as a safe haven investment<\/strong> and its rate grew significantly against the euro and the dollar. This led the SNB to implement a floor rate against the euro (to protect Swiss exports). This continued until the EUR\/CHF floor rate came to an end suddenly in 2015.<\/a><\/p>\n\n\n\n

Why the Swiss franc is a strong currency<\/h2>\n\n\n\n

In Switzerland\u2019s case, two key factors explain the robustness of the Swiss franc compared to other currencies:<\/p>\n\n\n\n