What You Should Know About The Swiss Franc In 2021

A Close Look at the Swiss Franc (Swissy)

The Swiss Franc, aka Swissy, is the only Franc currently issued in the European countries. The currency is issued by the Swiss National Bank and is used in Switzerland and Liechtenstein. The Swiss economy has long been considered the safest economy in the world, heavily dependent on foreign investment. Other major elements of the economy include watches, chemicals, textiles, machinery, and precision equipment. Economically, as politically, the country is neutral and remains independent from the European Union. 

In terms of forex liquidity, the Swiss Franc is ranked 5th in the world, behind the US dollar, the Japanese yen, the European euro, and the British pound

CHF Trends: A Look at Recent History

In recent years, the Swiss National bank has been determined to weaken the franc. In order to achieve this, inflationary monetary policies have been implemented in order to counter the deflationary problems which have been present for most of the past decade. This translates to negative interest rates. 

The main tool in the SNB’s arsenal to inflate the franc is the SARON (Swiss Average Rate Overnight). This is set at -75bps with the overnight CHF LIBOR at -78 to -80. The goal of this setup is to make the currency cheaper in order to spur on exports. 

The other big difference between the Swiss Franc and other major currencies is the way in which the SNB does its quantitative easing. For this, the SNB buys foreign assets rather than domestic assets. Purchasing assets such as US stocks weaken the franc and pushes out liquidity. If the SNB was purchasing domestic assets, the outcome would be a stronger Swiss franc. 

Despite these policies, the Swiss franc is regarded as a very solid currency. The country has a fiscal surplus, low indebtedness, healthy wages, and a GDP that is very high per capita. 

How the COVID-19 Pandemic Affected the Swiss Franc

Like many other countries, Switzerland faces a big problem in regard to covid related effects on the economy. When the covid-19 pandemic hit, Switzerland was forced to shut down much of public life and the demand for Swiss exports decreased significantly.

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