Why Is the Swiss Franc So Strong?
The Swiss franc is the national currency of Switzerland. The currency is abbreviated as CHF and is recognized by the symbol Fr. The Swiss National Bank (SNB), the country's central bank, has the exclusive authority to print banknotes and mint coins. Francs are divided into 100 centimes.
The Swiss franc increased in value substantially after 2000 against both the U.S. dollar and the euro, which is used in the European Union. Factors such as the European debt crisis and accommodative monetary policy from the U.S. Federal Reserve contributed to the boost in the franc's value.
Currencies trade in pairs, so they are strong or weak in relation to another currency. The European debt crisis caused investors to seek safe haven in the Swiss franc and loose monetary policy diminished the appeal of the US dollar.
- The Swiss franc is the national and only official currency of Switzerland.
- The franc increased in value over the euro and the U.S. dollar mainly because of the European debt crisis and monetary policy in the U.S.
- The Swiss National Bank removed the franc's peg to the euro in 2015, saying it was no longer sustainable.
- Considered a foreign currency, the euro can be used in Switzerland, but change is given in francs.
Understanding Why the Swiss Franc Is So Strong
The dramatic surge in the Swiss franc in 2015 was due primarily to one key event early in the year. On January 15, the Swiss National Bank unexpectedly removed the peg of 1.20 francs per euro. The central bank said this was necessary as the peg was no longer sustainable. The currency rallied a massive 30% versus the euro and 25% against the U.S. dollar in the initial reaction to the news. The move caused a major upheaval in the markets, forcing some foreign exchange brokers out of business.
The SNB peg was initially set in 2011 after the eurozone crisis caused investors to flock to the Swiss franc in search of a safe haven. The franc is widely viewed as a financial refuge due to the stability of the Swiss government and financial system. The buying interest at the time caused the franc to soar and, in turn, hurt the Swiss economy by making exports less competitive.
But several important factors in the economic landscape since 2011 may have contributed to the change in the SNB's policy. Economic strength in the United States and expectations that the Federal Reserve could hike interest rates in 2015 caused the euro and the Swiss franc to weaken substantially against the U.S. dollar. The expectations of quantitative easing (QE) from the European Central Bank (ECB), which did come to pass, also played an important role.
The QE program from the ECB was expected to weaken the value of the euro, which may have required the SNB to print even more francs to maintain the cap. In order to keep EUR/CHF from falling below 1.20, the SNB created francs and used them to buy euros.
The continued printing of francs led to some concern over hyperinflation among the Swiss populace and added pressure on the SNB to take action to remove the peg.
According to the EUR/CHF daily chart, the franc recovered about 50% before finding major resistance at that level. after the sharp drop on Jan. 15, 2015.
Why Doesn't Switzerland Use the Euro?
One of the common misconceptions is that all European countries are part of the European Union (EU) and that they all use the euro as their official currency. But that isn't the case—especially when it comes to Switzerland.
Despite being bordered by EU members like Germany and France, Switzerland isn't actually part of the EU at all. The Swiss people voted not to join the European Economic Area (EEA) 50.3% to 49.7% in 1992. In the 10-year period between 1992 and 2002, the nation's government a series of bilateral agreements with the union to allow people to move freely while remaining interdependent.
Switzerland does rely on the union as a major trading partner. According to the European Commission's website, the country's economic and trade relations with the union were negotiated to allow Switzerland access to the union's single market after the country's government agreed to accept some of the EU's legislation.
As such, Switzerland doesn't use the euro as its national currency. Since the franc is the national and only official currency, the euro is considered foreign money. You can still use the currency in the country, but change is given in Swiss francs at an exchange rate determined at the time the transaction is executed.
The European Union is Switzerland's largest trading partner, while Switzerland is the union's fourth-largest trading partner after the U.S., China, and the United Kingdom.
Swiss Currency FAQs
What Is the Swiss Currency?
The Swiss currency is called the franc. It is the national currency of Switzerland.
Are Euros Accepted in Switzerland?
You can use euros in Switzerland. But since it is considered a foreign currency, your change is tendered in francs at a rate determined when the transaction is conducted.
Is the Swiss Franc Stronger Than the U.S. Dollar?
The Swiss franc is stronger than the U.S. dollar. As of the end of trading on Feb. 24, 2021, one franc purchased $1.10.
Is the Swiss Franc a Good Investment?
The determination of what makes a good investment depends on the individual investor. Generally speaking, the franc is often considered a stable currency because of how the Swiss National Bank regulates and controls the value of the franc. The country is also very transparent about its financial markets, which are properly regulated. It is also considered a safe haven when other currencies experience volatility.
Are U.S. Dollars Accepted in Switzerland?
U.S. dollars are not accepted in Switzerland. This means if you plan on visiting the country, you must exchange your cash to francs before you go or after you arrive to conduct any financial transactions in the country.
The Bottom Line
Despite removing the three-year-old peg in January, the Swiss National Bank said it is prepared to intervene again in the foreign exchange market if necessary. It cited concerns that the currency is still significantly overvalued. Nonetheless, the Swiss franc remains a safe haven for many investors.