Swiss Franc - CHF

The Swiss Franc (CHF) is the currency used in Switzerland since 1948, date of the Constitution that founded the Swiss Confederation and in Liechtenstein (since 1919).

After its accession to the IMF (International Monetary Fund) in 1992, Switzerland had to give up the gold coverage of the Swiss Franc (hitherto equal to 40%) that was written in the old Constitution.

In the context of a floating exchange rate regime between great currencies (and more over with this change of 1973), thanks to a conservative monetary policy, to the banking secrecy principle and to the important gold reserves of the Swiss National Bank , the Swiss Franc has been traditionally seen as a defensive security. That is to say an investment that enables to overcome the turbulences in a crisis or great market depreciation periods, an investment that would not be affective by the same variations as the share market.

The entry into service of the Euro (2002) provoked a depreciation of the Swiss Franc against the new comer (as Switzerland makes 70% of its commercial exchanges with the European Union), the Swiss Franc defensive security status was then a bit reappraised; the EUR/CHF cross apprises in a few years (from mid-2002 to mid-2007) from 1.45 to 1.66 at its higher level.

At the same time, the Swiss Franc held steady and even went on to apprise against the American Dollar, but analysts also showed as a structural cause of the depreciation against Euro, the increase of the “carry trade” operations (massive sales of Swiss Francs by investors – so the currency decreases, Swiss Francs are borrowed with low interest rates because of the Swiss National Bank policy then sold again to buy other currencies- Euro or Pound Sterling – and after investments that enables to obtain superior interest rates).

With a lot of new occasional decreases on the foreign exchange market (Forex) which is in essence very liquid, the Swiss Franc won ground on the Euro simmer in the summer of 2007, which was the beginning of the decrease of the share market.

So the Swiss Franc clearly still enjoys its defensive security status that is shown in case of crisis. But this status could be called into question by the progressive and maybe medium-term inevitable ending of the banking secrecy in Switzerland.