Swiss Franc (CHF) - Switzerland Currency

Everything You Need To Know About The Switzerland Currency:

1. CHF currency coins come in 5 francs, 2 francs, 1 franc (equal to 100 centimes), ½ francs (50 centimes), 20 centimes, 10 centimes, and 5 centimes in value.
2. The most often used banknotes include 10 francs, 20 francs, 50 francs, 100 francs, 200 francs, and 1000 francs.
3. The 1000-franc banknote is the highest circulated bill, at 61.1%. That?s not all, it is also the second most valuable bill worldwide.

History of the Swiss Franc

The Swiss franc, also known as CHF, has a rich and fascinating history that can be traced back to the late 18th century when Switzerland was a confederation of independent cantons. At the time, each canton had its own currency, and there was no standard unit of exchange across the country.

In 1798, the French revolutionary army invaded Switzerland and established the Helvetic Republic, a new state that aimed to centralize power and modernise the country. As part of this effort, the Helvetic Republic introduced a new currency called the franc, which was based on the French franc.

However, the Helvetic Republic was short-lived, and in 1803, Switzerland regained its independence. The cantons once again began issuing their own currencies, but the franc remained in use as a standard unit of exchange.

In 1848, the new Swiss Federal Constitution stated that the federal government would be the only organization authorized to issue currency in the country. The Federal Assembly established the Swiss franc as a monetary unit on May 7, 1850, and passed it as the first federal monetary law. The Swiss franc was established at par with the French franc.

Between 1865 to the 1920s, France, Italy, Switzerland, and Belgium founded the Latin Monetary Union. This union linked the values of all four countries' currencies to the value of silver.

During World War II, the Swiss Franc played a crucial role in international finance. Switzerland remained neutral during the war, and its banks became a safe haven for investors and governments seeking to protect their assets from the conflict. The Swiss Franc was seen as a stable and secure currency, and it became a popular choice for international transactions.

Following the Second World War, the Bretton Woods exchange rate system was designed, and it was in effect up until the early 1970s. Swiss francs were included in the system. The CHF exchange rate and the price of gold were correlated until May 2000.

Today, both the foreign exchange market and the futures market see regular trading of the Swiss franc. Although it is most frequently traded against the euro, the US dollar, the Japanese yen, and the British pound are some other common currencies it is traded with. Switzerland offers investors a low-interest rate environment that helps investors to borrow in the Swiss franc and invest in high-return assets and other currencies worldwide.

Factors affecting Swiss Franc currency

The exchange rate of the Swiss franc is guided by several factors. They include:

1. The Swiss National Bank (SNB):

In the realm of central banking, the SNB, the Central Bank of Switzerland, occupies a special place. Having complete autonomy in determining monetary and exchange rate policy, it has created cutting-edge methods for controlling interest rates and managing liquidity. The SNB does not base its monetary policy on a particular money market rate, in contrast to the majority of central banks. It has generally turned to foreign currency swaps and repurchase agreements to affect the money supply and interest rates. Due to the use of foreign exchange swaps, this strategy significantly impacted the value of the Swiss franc.

2. Liquidity management:

Due to the SNB's use of foreign exchange swaps, its approach to liquidity management has usually had an impact on the Swiss franc. When the bank needs to add liquidity, it buys foreign currencies, primarily dollars, against Swiss francs, pushing the latter's exchange rate higher. SNB representatives can also influence the Swiss Franc by occasionally commenting on liquidity, the money supply, or the currency itself.

3. Interest rates and the discount rate:

The SNB announces changes in monetary policy using the discount rate, which has a substantial impact on the currency. However, at the bank's discount facility, the discount rate is hardly ever applied.

4. Economic data:

Switzerland releases several economic data sets, some of which are more important than others. The M3 (the broadest indicator of the money supply), unemployment, CPI, GDP, and the balance of payments are among the most significant ones. The Swiss currency and the Swiss economy as a whole may be significantly impacted by these data releases.

5. Cross rate effect:

Cross-currency rates (non-dollar exchange rates) like EUR/CHF or GBP/CHF might occasionally impact the USD/CHF exchange rate. For instance: A rise in GBP/CHF brought on by a UK interest rate increase may make the Swiss franc weaker than other currencies, such as the dollar. As a result, it is crucial to monitor cross-exchange rates.