The United States Dollar used to be one of the safest currencies in hard financial times, with investors hoarding Dollars to help mitigate uncertainty. However, today investors are concerned abou the future of the US Dollar, and looking for alternatives. These include bullion, cryptocurrencies, and other fiat currencies.
Investors Have An Alternative
Many investors around the world who used to trade in Dollars and Euros are now seeking a safe haven in Swiss francs. Switzerland is seen to be more financially stable than America or Europe. However Switzerland's financial experts are not happy with this trend, and its impact on the Swiss Franc.
In fact, the Swiss central bank recently mentioned in a press release that the Swiss franc is overvalued against both the Dollar and the Euro. The SNB did take steps to weaken the Franc, but those measures were insufficient to bring the Franc's value down to the level targeted by the Swiss Central Bank. One SNB official even stated that the Swiss Franc is now considered to be the “new gold” among the investors.
US Dollar vs Swiss Franc
Right now, the Franc is very much on course to replace the US dollar as the world’s strongest and most stable currency, thanks primarily to the ever-worsening economic conditions in the United States which constantly cause investors to look for alternatives to the US Dollar. America's policies of using Economic sanctions and tariffs to manipulate foreign governments further detracts investors from feeling confident in US investments.
The Franc appreciated against the US Dollar to such an extent that even the recent interest rate cut by the SNB had almost no effect.
Euro vs Swiss Franc
In contrast to the US dollar, the Euro has done somewhat better against the Franc. In fact, the Swiss currency started appreciating against the Euro because of Europe's debt troubles. Even after a bailout package was introduced for Greece, other European countries are continue to struggle with their economies.
The Financial Condition Of Switzerland
While most of the biggest economies in the world are going through tough financial times, Switzerland is looking stronger than ever. One of the main reasons why Switzerland is so financially strong is that it doesn’t have a large defense budget (small army) like other big countries, and they have a current account surplus of over 15% of GDP. The country also has a low debt to GDP ratio.
The overall economic growth of Switzerland sat at 2.6% last year, and the unemployment rate is 3%. Some people say that a huge surge in foreign currency deposits is helping Switzerland in maintaining a good overall impression and economic growth, but the Swiss think otherwise, and here’s why.
How the SCB Is Responding
The Swiss Central Bank is responding to the appreciation of Swiss franc by taking various measures to depreciate the currency and keep it at levels to encourage consumer spending.
Due to the appreciation in the Franc's value against the USD and Euro, the price of Swiss-made goods has increased considerably in the US and EU, and exports have suffered from this trend.
Everything made in Switzerland is becoming far more expensive in the outside world, and companies have now started buying cheaper materials to cut the prices and keep them competitively priced in foreign markets.
Locals in Switzerland have started avoiding Swiss goods. There has even been an increase in Swiss residents shopping in non-Swiss supermarkets in order to take advantage of the price differences. Local Swiss industries are now suffering heavily from this trend. Rising imports and decreasing exports have caused an imbalance in the country’s economy.
Due to all these disadvantages with Swiss Franc's current value, the SNB is looking to take some effective measures and depreciate the Franc in order to help the Swiss economy.