The Swiss franc, the official legal tender of Switzerland and Liechtenstein, is abbreviated as CHF. Confoederatio Helvetica franc stands for Confoederatio Helvetica, which is the Latin name for the Swiss Confederation. After other countries that used to denominate their currencies in francs accepted the euro, it is the only franc that is still issued in Europe.
The Swiss franc, also known as the swissie by currency market traders, is the world’s seventh most traded currency.
The currency market, often known as the foreign exchange market or forex, is the world’s largest financial market, with a daily average volume of over $6.6 trillion in April 2019. The Swiss franc accounts for a significant percentage of this activity.
The Swiss franc’s popularity originates from its status as a reliable safe haven currency, with many governments and other institutions keeping it as a hedge against market and investment volatility.
The currency’s stability is due to a number of reasons, including Switzerland’s long history of political stability, strong rule of law, impartial foreign policy, and western attitude to corporate matters. Switzerland’s inflation has been quite low over the years. Furthermore, the Swiss government and the Swiss National Bank (SNB) have usually avoided action.
The Swiss franc, on the other hand, is not a reserve currency. Foreign trade between Switzerland and other countries is usually settled in euros or US dollars rather than Swiss francs.
History
- The franc was introduced in 1798 and was used alongside various foreign currencies until 1803; there were over 8,000 different coins and banknotes in circulation.
- Switzerland declared the federal government of Switzerland to be the country’s official money issuer in 1848.
- The Federal Coinage Act of 1850 established the first Swiss franc as the country’s monetary unit, equal to the French franc.
- In 1865, Switzerland joined the Latin Monetary Union, which included France, Italy, Switzerland, and Belgium, and decided to use the gold standard, which they did legally until 2000.
- Switzerland became a member of the Brent Wood System in 1945. The Swiss franc was fixed against the dollar.
- The Swiss franc was stable versus the euro from 2003 to 2006. (EUR).
- The Swiss National Bank abruptly abandoned its peg to the euro in 2015, inflicting significant damage to stock and FX markets, with some investors and businesses wiped out as a result of the massive sell-off.
Trivia
The Swiss franc is known as the’swissie.’
On all Swiss franc banknotes, four national languages are included, including German, Romansh, French, and Italian.
The Peg to the Swiss Franc
In the worldwide foreign exchange markets, demand for the Swiss franc as a safe haven boosts its value significantly. In the years following the 2008 financial crisis, demand for the money as a safe haven increased dramatically.
By 2021, the SNB would have stockpiled USD 1.02 trillion (CHF 941.4 billion) in foreign currency, equivalent to around 130 percent of Switzerland’s GDP.
Although the high currency value made imported items inexpensive in Switzerland, it damages domestic exporters and the Swiss tourism industry by raising the cost of purchasing Swiss-produced goods and services.
With Switzerland’s economy so reliant on exports and tourism, global investors fleeing to the Swiss franc for protection was damaging the economy. The Swiss National Bank defied convention in September 2011 by abandoning the float and fixing the swissie to the euro at 1.2000 Swiss francs per euro.
It defended the peg by selling Swiss francs on the open market to keep the peg on the currency market.
The SNB abruptly withdrew the peg and allowed the currency to float in January 2015, causing turmoil on the stock and forex markets. Within minutes, Swiss equities plummeted and the Swiss currency jumped 25 percent to 30 percent against the euro.
Some investors and businesses were wiped out.
Economists and investors slammed the SNB for reducing the peg without warning and for putting it in place in the first place. In Switzerland, its actions were likewise unpopular.
Investing in the Swiss Franc
The Swiss franc has traditionally been viewed as a safe haven asset by investors concerned about the instability in larger markets due to the Swiss economy’s stability. Although buying Swiss francs can provide CHF exposure, this approach may not be optimal for ordinary investors because it requires them to open a currency account.
Investing in exchange traded funds that make investments in Swiss currency is an alternate method. Without the hassle of opening a separate FX account, these money can be traded using a regular brokerage account. Currency futures and options trading are also available for more adventurous traders.
The Swiss Franc Is a Safe Haven Currency for What Reason?
Because of the perceived stability of the Swiss economy and political system, as well as its low inflation rate, the Swiss franc is regarded as a safe haven currency. Political unrest and debt issues in the European Union and the United States have prompted some international investors to shift assets to the Swiss franc, which has risen in value against the euro and the dollar.
Bottomline
The Swiss franc (CHF) is one of the safest assets in the world and one of the most traded currencies on the currency market. ETFs, derivatives, and buying Swiss francs on the currency market are all options for gaining CHF exposure.
