Switzerland’s national currency
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What is the Swiss Franc (CHF)?
The Swiss franc refers to Switzerland’s national currency and is represented by ISO code CHF. It was formally recognized as Switzerland’s currency in May 1850, replacing many currencies provided by its numerous member states.
Switzerland consists of 26 member states, and German, Italian, French, and Romansh are its four national languages. The Swiss franc is one of the features that unify the country. The Swiss Federal Constitution of 1848 stipulated that only the federal government would be able to issue CHF.
The Swiss franc is made up of 100 cents, with coins of 5, 10, and 20 cents and 0.5, 1, 2, and 5 francs currently in circulation. Banknotes in denominations of 10 CHF, 20 CHF, 50 CHF, 100 CHF, 200 CHF, and 1,000 CHF are also available.
Summary
- The Swiss franc refers to the national currency of Switzerland and is represented by ISO code CHF.
- The country’s zero-inflation policy, combined with its political independence, makes CHF an extremely powerful and stable currency.
- CHF is referred to as a safe haven since it appreciates during periods of political and economic turmoil. Still, it is not regarded as a reserve currency.
History of the Swiss Franc
Until 1798, about 75 organizations minted coins in Switzerland, leading to 860 distinct types of currency in circulation of different denominations, weights, and monetary structures. Some of the currencies contained thalers from Bern, Basel, Zurich, and Geneva, among others.
In 1798, the Helvetic Republic adopted a new monetary structure, which was based on the Berne thaler and was equivalent to six grams and three-quarters weight of pure silver. The franc stayed in circulation until the Helvetic Republic ended in 1803 but remained a base for the currencies of several member states of the Reformed Swiss Confederation.
In 1848, the new Swiss Federal Constitution specified that the only institution allowed to issue currency in the country would be the federal government. The first federal monetary law enacted on May 7, 1850 by the Federal Assembly defined the franc as a monetary unit in Switzerland. The Swiss franc and the French franc were put into use simultaneously.
The Latin Monetary Union was established between 1865 and the 1920s by Switzerland, France, Belgium, and Italy. The values of the currencies of all four countries were linked to the value of silver. The Bretton Woods exchange rate scheme included the Swiss franc.The system was developed post the Second World War and continued until the early 1970s. Until May 2000, the exchange rate of CHF was connected to the price of gold.
Swiss Franc and Monetary Policy
The Swiss Central Bank’s longstanding zero-inflation policy and Switzerland’s political independence make CHF an extremely powerful and stable currency. It appreciates at periods of political and economic turmoil, as was the case in 2008 when the European debt crisis exploded. Hence, CHF is given the status of a safe haven. However, it is not regarded as a reserve currency.
The Swiss National Bank (SNB) initiated an active policy in September 2011 related to the interference in the currency markets together with a reduction in interest rates to lower the value of CHF against the euro. In December 2014, the SNB adopted a policy of negative interest rates, but the currency continued to strengthen. Swiss stocks fell sharply, while the Swiss franc rose in minutes to about 30% compared to the euro, wiping out several investors and companies.
Investors and economists highly opposed the SNB’s action to enforce the policy, to begin with, and its decision to withdraw the peg without notice. Its actions were also controversial in Switzerland. Thanks to widespread foreign scrutiny, as well as the domestic support for measures to take place in the SNB, the bank announced that it was returning to its conventional non-interventionist stance.
The Swiss franc is regularly traded on the foreign exchange market, as well as the futures market. It is most popularly traded against the euro, but it is also exchanged against the United States dollar, the British pound, and the Japanese yen. Switzerland provides investors a low-interest-rate environment, implying that the investors regularly borrow in CHF and invest in high-yielding assets and other currencies in the world.
Related Readings
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