How Does The Swiss Franc Affect The Euro Exchange Rate?
Not many governments in the world are happy to intervene in the market supporting another currency, but the Swiss National Bank poured vast amounts of money to support the euro exchange rate against the Swiss currency between March 2009 and June 2010. These efforts had only a temporary effect, though. One of the factors shedding light on such, at first sight strange, situation is the fact that traditionally the franc is a strong currency, or “hard currency”, and many investors look at the Swiss currency as a shelter in times of financial turmoil and ongoing crisis.
Actually, the Swiss franc remains the only national currency in Europe, which continues the long tradition of many mediums of exchange that were called “franc” during the centuries. Only in May 2000, the Swiss franc lost its official linking to the gold; previously, the Swiss legislation required least 40 per cent of the value of the national currency to be backed by gold. That is why the Swiss franc was, and still is, considered one of the safest currencies in the world, while the euro exchange rate against the Swiss currency represents one of the most actively traded currency pairs on the Forex markets.
Following its weak start in 1999, the common European currency gradually gained in value against all major world currencies but the global financial crisis affected the EUR/CHF currency pair recently. In August 2010, the euro exchange rate vs. the Swiss franc witnessed a historical drop confirming the status of the Swiss franc as an important reserve currency in times of financial troubles.
Besides the Swiss currency strength, this is a currency whose banknotes feature the four national languages of Switzerland: French, German, Romansh, and Italian; not a widespread practice in the world of currencies. Today’s reputation of the Swiss franc contrasts sharply with the unpopular image of this currency in the first half of the XIX century. At that time, most financiers and merchants viewed the Swiss franc as an extremely complicated currency, which is better to avoid due to its unregulated character. Only in 1907, the first Swiss banknotes came into the world following the introduction of federal currency and coinage laws fifty-seven years earlier.
The Swiss economy is not big enough to be able to determine unilaterally the euro exchange rate against the Swiss franc; however, the local banking system is one of the most developed in the world and this is a factor influencing the confidence of various investors. The franc’s reputation as a very strong currency adds to the strength of the local banks therefore it is not surprising that the Swiss currency is among the major world currencies. Following the abolishment of the gold standard, there are not so many currencies in the world, which are considered safe enough in times when all other foreign currencies are under constant depreciation pressure. The Swiss franc is among those few currencies and it is widely traded on all Forex platforms all over the world.
