Swiss Franc (CHF)

The official currency of Switzerland, Liechtenstein, and the Italian exclave of Campione d'Italia

Author: Sid Arora
Sid Arora
Sid Arora
Investment Banking | Hedge Fund | Private Equity

Currently an investment analyst focused on the TMT sector at 1818 Partners (a New York Based Hedge Fund), Sid previously worked in private equity at BV Investment Partners and BBH Capital Partners and prior to that in investment banking at UBS.

Sid holds a BS from The Tepper School of Business at Carnegie Mellon.

Reviewed By: Patrick Curtis
Patrick Curtis
Patrick Curtis
Private Equity | Investment Banking

Prior to becoming our CEO & Founder at Wall Street Oasis, Patrick spent three years as a Private Equity Associate for Tailwind Capital in New York and two years as an Investment Banking Analyst at Rothschild.

Patrick has an MBA in Entrepreneurial Management from The Wharton School and a BA in Economics from Williams College.

Last Updated:August 28, 2023

What Is Swiss Franc (CHF)? 

Swiss Franc (CHF) was introduced in 1850 and are the only franc left in Europe. It is the official currency of Switzerland, Liechtenstein, and the Italian exclave of Campione d'Italia

Swiss franc banknotes are issued by the Swiss National Bank (SNB) and exist in six denominations: 10 francs, 20 francs, 50 francs, 100 francs, 200 francs, and 1,000 francs. 

CHF is divisible into 100 units with the rappen, in German; centime, in French; centesimo, in Italian; and rap, in Romansh, denoting one-hundredth of a Swiss franc. 

Its coins are available in seven denominations from the Swissmint: 5 centimes, ten centimes, 20 centimes, 12 francs, 1 franc, 2 francs, and 5 francs. It was steady versus the euro (EUR) from 2003 to 2006. 

The Swiss National Bank unexpectedly withdrew its peg to the euro in 2015, causing considerable harm to stock and foreign exchange markets and wiping out numerous investors and businesses.

This currency, the world's seventh-most-traded currency, has grown in popularity due to its status as a safe-haven currency. As a result, many governments and financial institutions retain CHF as a hedge against market and investment uncertainty.

Key Takeaways

  • The Swiss Franc (CHF) was introduced in 1850 and is the official currency of Switzerland, Liechtenstein, and the Italian exclave of Campione d'Italia.
  • Swiss Franc banknotes are issued by the Swiss National Bank (SNB) and exist in denominations of 10, 20, 50, 100, 200, and 1,000 francs. The currency is divisible into 100 units called rappen, centime, centesimo, and rap, in different languages.
  • The Swiss Franc has a reputation as a safe-haven currency due to its stability, making it popular during times of market uncertainty. The Swiss National Bank's unexpected withdrawal of the CHF peg to the euro in 2015 caused significant disruption.
  • Switzerland is a wealthy nation with a strong economy, low unemployment, high GDP per capita, and a well-developed service sector. It's known for its financial industry, neutrality, and membership in international organizations.
  • Investing in Swiss Francs is influenced by factors such as the robust economy, central bank policies, low volatility, and types of investment options like forex and ETFs. The currency's strength can be both an advantage and a limitation for different aspects of the economy.

Switzerland Overview 

Switzerland is a tiny country in Central Europe with 16,000 square miles of glacier-carved Alps, lakes, and valleys. It is known as the Swiss Confederation, is one of the world's wealthiest countries, and is well-known for its neutrality in international issues.

According to the CIA World Factbook, Switzerland has low unemployment, a skilled workforce, and one of the world's most excellent gross domestic products per capita. 

Low corporate tax rates, a well-developed service sector driven by financial services, and a high-tech manufacturing industry contribute to the country's robust economy.

Switzerland's financial industry is likewise well-known for its secrecy. Although reporting standards and laws have increased openness, secrecy rules remain, allowing nonresidents to do business through offshore firms and intermediaries.

As a result, Switzerland, particularly Geneva, is a preferred headquarters site for international organizations like the International Committee of the Red Cross and the United Nations, even though Switzerland just joined the latter in 2002. 

The nation is a member of the IMF, WTO, and World Bank.

Switzerland's neutrality has long been respected by its European neighbors; the country did not take sides in either world war and does not belong to the European Union.

Swiss Economy

Switzerland has one of the world's most excellent per-capita GDP levels. The services sector is primarily responsible for the country's robust economic success. Switzerland's most significant commercial partner is the European Union.

It is one of the world's most mature and well-developed free-market economies. The service sector, notably Swiss banking, and tourism, has evolved to play a substantial economic role. 

In the 2015 Global Innovation Index, Switzerland's economy was ranked first in the world and third in the 2020 Global Competitiveness Report. In addition, Switzerland, behind Liechtenstein and Luxembourg, is the world's third-richest landlocked country, according to UN data from 2016.

Even throughout the COVID-19 crisis, Switzerland's government debt remained modest compared to other countries. Gross government debt (before deducting financial assets) was at CHF 100 billion at the start of 2021, accounting for 15% of GDP.

The service sector, particularly banking, and tourism, is critical to the Swiss economy. In addition, Switzerland, behind Liechtenstein and Luxembourg, was named the world's third-richest landlocked country in 2016. 

Agricultural items, metals, chemicals, timepieces, and machinery are all exported. 

Vehicles, metals, textiles, machinery, and agricultural items are examples of imported goods. 

Switzerland is home to around 28% of all offshore money. The nation is not a member of the European Union or the European Economic Area. However, it is a single market member and has several bilateral agreements with the EU. 

Inflation in Switzerland has been very modest over the years, at 0.4 percent in 2019.

History of the Swiss Franc

The franc was launched in 1798 and was used alongside other foreign currencies until 1803; there were over 8,000 distinct coins and banknotes in circulation then. 

1. 1848 - 1865

Switzerland designated 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, on par with the French franc.

The Latin Monetary Unit was established in 1865 when France, Belgium, Italy, and Switzerland agreed to fix their national currencies based on 4.50 grams of silver or 0.290322 grams of gold.

2. 1865 - 1920

The Union began to disintegrate during the 1920s, and agreements were officially terminated in 1927. Still, the Swiss franc maintained the exact exchange rate until 1936, when it suffered its first depreciation on September 27, 1936, during the Great Depression.

3. 1920 - 1945

Following the devaluations of the British pound, US dollar, and French franc, the currency dropped by 30%. 

Switzerland joined the Bretton Woods Agreements in 1945, and the franc was pegged to the dollar at 4.30221 CHF per dollar.

Since 1945, the Swiss Franc has been increasing in value, a sign of strength. The central bank intervenes when they believe the currency is overvalued. 

Are Swiss Francs (cHF) a Haven? 

The CHF has consistently shown to be one of the strongest currencies in the world, and the country has long been regarded as a financial haven. 

Investors might take safety in Switzerland's national currency, which is famed for maintaining its value amid a world of financial stress and strife. 

Investing in the currency may provide you with a high level of security, minimal risk, and inflation protection. Investors are always on the lookout for a high return with little trouble. Stocks can provide great profits, but they also carry a significant danger of loss and high inflation.

Why Should I Invest in Swiss Francs?

The investment decision depends on the following criteria:

1. Economy

There is no national deficit since the economy is so robust. Moreover, because the Swiss economy generates more income than it spends, the currency is entirely supported by a self-sufficient economy. 

The country also has a low unemployment rate (4.94%), a high per capita income ($87,351.03), and a well-known financial center.

2. Central Bank Policies

The Swiss government set an artificial currency ceiling of 1.20 versus the euro to prevent the franc from becoming too strong. With freshly created francs, the Swiss Central Bank purchased the euro. 

In January 2015, the Swiss National Bank lifted the restriction that had been in place for barely three years. As a result, the steady franc increased in value. 

The currency market was shocked, and traders and brokers lost a lot of money. Naturally, many investors hesitated to put their money in the CHF after this, but it remains a mainstay in the investing world.

3. Low Volatility

Because of the minimal short-term volatility in the exchange rate between the CHF and the USD, the Swiss franc may appeal to American investors. 

Since 1999, the monthly change in the exchange rate between the dollar and the Swiss franc has been roughly 1.95 percent, which is, however, more significant than the 0.85 percent monthly change in the exchange rate between the euro and the Swiss franc.

Limitations of Investing in Swiss Franc

Some dare to speculate whether the Swiss National Bank’s preferred emergency solution to tame the franc's strength would see another outing as major central banks turn again to easing.

1. It makes life difficult for exports

For exporters, a strong CHF is a pain in the neck. But on the other hand, the CHF has been gaining value over the euro for quite some time. This is because Swiss prices have been rising slower than those in the eurozone

According to Credit Suisse economists' estimations, the CHF is still roughly 10% overvalued against the euro. Estimates based on fair worth, on the other hand, reveal that this wasn't always the case.

2. Currency Fair value 

Currencies are also a popular way to invest in the financial markets. As a result, the value of a currency is influenced by investors' risk and return expectations. 

Credit Suisse calculates fair value using an upgraded purchasing power parity model, which considers all factors influencing a currency's risk and reward premiums. According to this methodology, the CHF's fair value against the euro is now 1.22. 

On the other hand, the EUR/CHF exchange rate has been stuck around 1.10 for several years. This indicates that the Swiss franc is overvalued against the euro by roughly 10%.

3. Inflation 

The EUR/CHF exchange rate has likewise been declining at an increasing rate, falling by roughly 20% since 2002. This is owing to greater inflation in the eurozone than in Switzerland and a reduction in the CHF's central upward pressure.

The franc has barely appreciated by 1.5 percent since the central bank declared it "highly valued" in June. Yet, according to the OECD's estimate based on purchasing-power-parity, it is also the most overvalued currency in the Group of 10.

Did you know?

The secret riches of clients involved in torture, drug trafficking, money laundering, corruption, and other major crimes have been made public thanks to a massive leak from Credit Suisse, one of the largest private banks in the world. 

The leak revealed the owners of more than 100 billion Swiss francs ($102.5 billion) in funds stored in one of Switzerland's most renowned financial institutions. The information relates to accounts belonging to 30,000 Credit Suisse clients worldwide. 

Despite Credit Suisse's repeated commitments over the decades to screen out questionable clients and illegal assets, the leak indicates extensive due diligence failures on their part. 

Ultimately, this shows that, even with new regulations, Swiss banks are still viable places for criminals to store their ill-gotten gains.

Researched and authored by Charbel Yammine | LinkedIn

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