Market Insights

The Swiss Franc: What You Should Know

Swiss franc notes

The Swiss franc (CHF) is the official currency of the Swiss Confederation and the countries of Liechtenstein and Campione d'Italia. This guide is intended to give you a very basic understanding of the Swiss franc, the currency of Switzerland. It should help you:

  • Understand the history of the Swiss Franc;
  • Compare the Swiss franc with other currencies;
  • Place the Swiss Franc into a global perspective;
  • Understand the Swiss Franc's rates of exchange; and
  • Understand the role of the Swiss Franc on the world stage.

Swiss franc banknotes are issued in the following denominations: 10, 20, 50, 100, 200, and 1,000 francs.

The obverse side of CHF banknotes includes images of the Swiss Cross, the Swiss Alps, a portrait of Wilhelm Tell, the 13 stars of the European flag, a portrait of the first President of Switzerland, the founder of the Swiss Confederation, and the first Federal President of Switzerland, Ueli Maurer.

The reverse side of Swiss franc banknotes depicts the Swiss landscape, the Swiss Alps and images of localities of Switzerland, including the Geiss flower, the Naturpark Saanenmöser, the Jura, the Rhine Falls and the Matterhorn.

As for the currency subunits, subdividing the Swiss Franc into 100 units result in it being called Rappen (Rp.) in German, Centimes (cen) in French, Rappen (rp.) in Italian, and Centesimi (ct) in Romansch.

A Glimpse Into the History of the Swiss Franc

The Swiss franc has a long and interesting history, which can be traced back to the early days of the Swiss Confederation. Switzerland has enjoyed political stability for more than two centuries, has been one of the few countries in Europe to be spared from the conflagration that became World War I.

As a result of this stability and a willingness to allow the free-market to operate with a minimum of government interference, Switzerland has reaped the benefits of a strong, stable currency. The Swiss franc was a stable currency even before Switzerland achieved its independence as a federation in 1848.

Despite its political stability, Switzerland had no official currency for much of its early history. The Helvetii, a Celtic tribe that occupied Switzerland at the time of the Roman Empire, used a barter system, as did other tribes in the region. The Franks issued gold coins, as did the Burgundians. When Charlemagne conquered the region, he declared that their coins were the circulating currency. Because they were minted on a base of gold and were readily accepted in a region with a rich gold supply,

So as mentioned, the Swiss Franc was introduced in 1848, when the Swiss Franc was introduced to allow for a stable exchange rate with the French franc. This is when Swiss franc banknotes were first issued. In 1850, the Swiss franc was set equal to the French franc, allowing for the currencies of Switzerland and France to be easily interchangeable.

The initial parity of the French and Swiss francs was set at 5.5 francs = 1 franc. In the years to follow, the Swiss franc continued to maintain its convertibility with the French franc.

A Few Facts About the Swiss Franc

The French Franc Dates Back Since 1798

In 1798, when the Helvetian Republic was formed, the French Franc was introduced. But in the war of 1799, the area that was called Switzerland separated from France and was given the new name of the Helvetic Republic.

The Helvetic Republic became a federation in 1803 and in order to do that it needed its own government and its own currency, so the Swiss franc was born.

The Official Swiss Franc was Established in 1850

In 1850, the Swiss franc was established and this was the time when the Swiss franc was first released. The franc was initially equal to the French franc and they were interchangeable. This means that one franc was equal to five and a half-French francs and of course the French franc was a popular currency at the time.

In the years to come, a lot of countries began to use the Swiss franc as their official currency. And when that happened, the value of the Swiss franc was increased. In the 1880's and the 1920's, there were two substantial increases to the value of the Swiss franc. In both of these periods, the value of the franc was significantly reduced.

The value of the franc was changed to become similar to the US dollar and the Italian currency which had been devalued significantly. But this devaluation didn't affect the Swiss franc too much and the franc continued to be utilised as the official currency.

The Swiss Franc is the Only Franc Left in Europe

Since the Second World War, Austria, Czechoslovakia, France, Germany and Yugoslavia have all adopted the Euro.

The Swiss franc has maintained its value and this is something that has worked in the Swiss franc's favour. The franc has been a very strong currency and it is one of the few currencies in the world that is still independent.

The Swiss Franc is Like Silver and Gold to the World

The Swiss franc is referred to as the 'safe-haven' currency of the world. This means that when times are tough, the Swiss franc stands on its own. The Swiss franc is a very strong currency, which means that it is not subject to devaluations or bank failures. This means that the Swiss franc is like gold and silver in the world.

People know that it is a strong currency, which they can trust and they of course, also know that they will be able to convert it into other currencies if they need to.

The Swiss Franc: a Safe-Haven Currency

By allowing the free-market to operate, Switzerland has been able to achieve a strong currency, that is both immune to government interference, and resilient against inflation. Because of these two factors, the Swiss franc is considered a safe-haven currency and is often referred to as a store of value.

With the Swiss franc being the go-to currency against economic uncertainty, it led Switzerland to be one of the most advanced free markets across the world, taking up a whopping 74 per cent of the total gross domestic product (GDP). Meanwhile, an estimate of 28 percent was accounted for all offshore funds banked in Switzerland.

When it comes to the economy's products, Switzerland typically exports products related in agriculture, metals, chemicals, watches, and machinery. On the other hand, its imports focus on vehicles, metals, textiles, machinery, as well as agricultural products.

Going back to 2016, Switzerland became the first richest landlocked country in the world, falling next to Liechtenstein and Luxembourg. Fast-forward to 2019, the country also takes pride in having little-to-no impact from the inflation, only amounting to a low 0.4 percent. In 2020, Switzerland ranks as the 18th largest national economy by nominal GDP, resulting in a spectacular worth of US$750 billion.

Not to mention, the Swiss currency can be accessible on a larger scale compared to highly stable fallbacks like gold, and the fact that Swiss francs are one of the most liquid assets make it the optimal choice for institutional investors and governments.

A Ripple in Swiss Franc's Save-Haven Status: What Happened When Switzerland Pegged the Currency to the Euro?

In 2011, Switzerland opted to peg the Swiss franc to the euro, in an attempt to stabilize the volatile economy. However, the European sovereign debt crisis of 2010-11 led to a massive influx of money into the Swiss franc, to the point where the Swiss National Bank was forced to raise interest rates, resulting in the rise of the Swiss franc value to 1.20 euros per franc.

This became a problem for Switzerland because the increase in the value of the Swiss franc was putting a strain on the Swiss economy, as the Swiss franc was becoming too strong. With higher rates, many foreign exchange brokers and investors took the brunt of the impact, resulting in multiple insolvencies and the world's sudden hesitation to invest in Swiss francs.

Turn of a New Tide: Investing in Swiss Currency with ETFs

As mentioned, given the volatility of the Swiss franc, it would be best if you purchase Swiss francs through an ETF. An ETF is a type of security, which holds assets such as stocks, commodities, or bonds. You can purchase ETFs through a brokerage account, which allows you to buy and sell shares of the fund, just like stocks or bonds. These funds are typically classified as mutual funds and are traded on the stock market.

With that in mind, the Invesco CurrencyShares Swiss Franc Trust (FXF) is the leading ETF, which was created to stay on top of the Swiss franc prices according to the fluctuations of the U.S. dollar. On that note, investing in Swiss currency with ETF offers the following advantages:

Easy to Purchase - Investors can purchase shares of the FXF through their local brokerage account and the fund is listed on the New York Stock Exchange. Hence, you will be able to purchase the FXF at any moment, even outside of trading hours.

Prudent Margin - You can use ETFs for margin accounts, which enables you to purchase securities with leverage.

Lower Cost - ETFs charge fewer fees than actively managed mutual funds and provide a convenient way to invest in the Swiss franc.

A Brief Guide to Trading Swiss Currency in the Forex Market

Swiss francs being one of the most liquid currencies in the world, it is traded in the foreign exchange market. If you are interested in trading Swiss francs, then simply register an account through your local brokerage firm.

The Forex market is the largest financial market in the world, with over $1.5 trillion per day in transactions. The market is open 24-hours-a-day, five days a week and it is located in the western United States and Europe. Because the market is open such long hours, you can conduct Swiss francs trading at several different times of the week.

Trading Swiss francs used to be a cumbersome task. However, today's modern financial markets have made it easy to trade Swiss francs by using technology and information readily available on the internet.

With the use of the internet and online trading platforms, you can execute Swiss franc currency trading from anywhere in the world, as long as you have a computer and an internet connection.

Why Trade in the Forex Market?

Trading currency in the foreign exchange market is one of the easiest ways to invest in commodities and benefit from the fluctuation of certain currencies. Trading currencies can be a risky venture, because if you're not aware of your trades, you can lose money. However, if you're aware of what you're doing, you can make a lot of money in the foreign exchange market. This is because trading currencies is a zero-sum game.

In fact, there are two types of trades available in the foreign exchange market:

Spot Exchange - Examples of spot currencies include the U.S. dollar (USD) and the euro (EUR).

Forward Exchange - Examples of forward currencies include the Swiss franc (CHF).

The process of trading currencies is as follows: First, you agree to purchase a currency at a certain exchange rate, then you wait for the exchange rate to increase or decrease before you exchange your purchased currency for another.

The Bottom Line: The Wonders of the Swiss Franc and Its Continuous Stability

The Swiss franc has been the go-to currency for off-shore investments for years. As the world's economic outlook for the next year is still uncertain, investing in the Swiss franc is the best way to protect your savings from the unforeseen.

To the "traditional" investor, the Swiss currency is best known for its stability. This makes it a great option for a hedge against a volatile stock market, potentially offering a safer alternative to standard G7 currencies.

With history being on the Swiss franc's side, it's safe to say that this will not only be the currency of choice for the next year but for years to come as well.

How Can We Help You?

Bound is an auto hedging platform designed to make currency protection better and more effective for various industries. If you're interested in ,currency protection for businesses, reach out to us today!

With Bound, you can effectively manage your FX risk and generate greater returns with a layered hedging strategy. Our platform allows you to quickly access the market and analyze your potential profit at any given time. You can make adjustments to your pricing strategy to fit your needs and protect your risk exposure.

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