November 30, 2022

Swiss Franc or Swissy: The safe-haven currency

LQDFX Forex news Blog | Swiss Franc or Swissy: The safe-haven currency

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You may have heard it as Swiss Franc or Swissy, the franc or CHF internationally. Along with the gold it is among the ultimate safe-haven assets.  

The CHF, with the ISO 4217 code, is the currency and legal tender of Switzerland, Liechtenstein and the Italian exclave of Campione d’ Italia.

The Swiss National Bank (SNB) issues Swiss Franc banknotes and the federal mint Swissmint issues the Swiss Franc coins.

A minimum of 40% of the circulation of the Swiss currency should be backed by gold reserves. This legal prerequisite makes it a reliable and stable store of value which is the main feature of a safe-haven asset.

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Why is the Swiss Franc or Swissy considered a safe-haven currency?

What makes the Swiss currency an ultimate resort for investors is actually the political stability and neutrality which characterizes Switzerland. Swiss neutrality is one of the country’s main principles and the country has not been in a state of war since 1815. Switzerland maintained armed neutrality during World War I and World War 2.

Further, the “neutral” European country has a robust financial system and a banking system renowned for its secrecy. Along with the Swiss Alps, the Swiss cheese and the Swiss chocolate, the Swiss banks are the emblematic element of the Swiss Confederation.

Switzerland’s long history of banking confidentiality goes back to the early 1700s. Starting as a way to protect wealthy European banking interests, Swiss banking secrecy was codified in 1934. The landmark law – banking code was used to protect assets of persons being persecuted by Nazi authorities. However, people use the same laws to illegally evade taxes, hide assets, or generally commit financial crime.

What moves the Franc in the Forex market?

Franc’s market movements are mainly based on external events, rather domestic economic changes. During times of global instability and risk-aversion investors’ demand for the Swiss franc strengthen its value. Whether the domestic economy expands, or contracts is irrelevant.

Investors traditionally sought the franc in times of uncertainty and the currency’s surge reflects the currency’s role as a safe haven.

During the global financial crisis in recent years, the Swiss National Bank aggressively protected the economy from the negative effects of the rapidly appreciating currency. The SNB made an unprecedented move on September 6th, 2011 and set a base value on the EUR/CHF cross.

GDP, Consumer Price Index and Retail Sales are among the major economic indicators gauging the domestic economic activity.

PLEASE NOTE The information above is not investment advice.