What Is CHF (Swiss Franc)?
CHF is the abbreviation for the Swiss franc, the official legal tender of Switzerland and Liechtenstein. CHF stands for Confoederatio Helvetica franc, where Confoederatio Helvetica is the Latin name for the Swiss Confederation. It is the only franc that is still issued in Europe after the other nations, that used to denominate their currencies in francs, adopted the euro. The Swiss franc is often called the swissie by currency market traders, and it is the seventh most traded currency in the world.
Key Takeaways
- CHF is the abbreviation for the Swiss franc, which is the official currency of Switzerland.
- CHF is the only franc that is still issued in Europe after the other nations, that used to denominate their currencies in francs, adopted the euro.
- CHF’s popularity stems from its status as a perennial safe-haven currency.
- In the 20th century, the Swiss National Bank was required to keep 40% of its reserves in gold, but this requirement was eliminated in 2000.
- CHF was briefly pegged to the euro between 2011 and 2015.
Understanding CHF (Swiss Franc)
The currency market, also known as the foreign exchange market or forex, is the largest financial market in the world, with a daily average volume of more than U.S. $6.6 trillion in April 2019. The Swiss franc comprises a large portion of this trade. The Swiss franc’s popularity stems from its status as a perennial safe haven currency, with many governments and other entities holding the currency as a buffer against instability in various types of markets and investments.
The currency’s stability is the result of several factors, including Switzerland’s history of political stability, its strong rule of law, its neutral stance with regard to foreign affairs, and its western approach to business affairs. Inflation in Switzerland has been relatively low over the years. In addition, Switzerland’s government and the Swiss National Bank (SNB) are traditionally non-interventionist. However, the Swiss franc is not a reserve currency. Foreign trade involving Switzerland is typically settled in euros or U.S. dollars, not in Swiss francs.
The Swiss Franc Peg
The demand for the Swiss franc as a safe haven substantially increases its value in the global foreign exchange markets. The demand for the currency as a safe haven soared in the years following the 2008 financial crisis. By 2021, the SNB had amassed USD 1.02 trillion (CHF 941.4 billion) in foreign currencies,equal to about 130% of Switzerland’s GDP.
Although the high value of the currency made foreign goods cheap in Switzerland, it hurts domestic exporters and the Swiss tourism industry, as it makes the purchase of Swiss manufactured goods and services more expensive.
With Switzerland’s economy so heavily dependent on exports and tourism, the flight to the safety into the Swiss franc by global investors was hurting the economy. In Sept. 2011, the Swiss National Bank broke with tradition when it abandoned the float and pegged the swissie to the Euro, with the fix set at 1.2000 Swiss francs per euro. It defended the peg with open market sales of the swissie to maintain the peg on the forex market.
In Jan. 2015, the SNB suddenly dropped the peg and allowed the currency to float, wreaking havoc on stock and forex markets. Swiss stocks tumbled dramatically, while the Swiss franc soared about 25%-30% relative to the euro within minutes. Some investors and firms were wiped out.
Economists and investors strongly criticized the SNB’s actions for dropping the peg without warning and for implementing it in the first place. Its actions were also unpopular in Switzerland.
Following the creation of the euro, Switzerland is the only remaining country whose currency is called the franc.
Investing in the Swiss Franc
Due to the stability of the Swiss economy, the Swiss franc has long been regarded as a safe haven asset by investors worried about the turmoil in larger markets. Although it is possible to gain CHF exposure by simply buying Swiss francs, this strategy may not be ideal for retail investors because it requires them to set up a forex account.
An alternative strategy would be to invest in exchange traded funds that make investments in the Swiss currency. These funds can be traded through an ordinary brokerage account, without the trouble of setting up a separate forex account. More adventurous traders can also bet on the franc through currency futures or options trades.
The Bottom Line
The Swiss franc (CHF) is considered one of the world’s safest assets and is one of the most frequently traded currencies on the forex market. Investors can gain CHF exposure through ETFs, derivatives, or by simply buying Swiss francs on the forex market.
Why Is the Swiss Franc a Safe Haven Currency?
The Swiss franc is considered a safe haven currency due to the perceived stability of the Swiss economy and political system and a relatively low inflation rate. Political turmoil and debt crises in the European Union and the United States have led some international investors to move some wealth into the Swiss currency, which tends to gain value against both the euro and the dollar.
Is the Swiss Franc Backed by Gold?
While Switzerland does not use the gold standard, the Swiss National Bank continues to maintain the world’s 8th-largest gold stockpile, with over 1000 tons of the precious metal. The Swiss constitution once required the bank to hold 40% of its reserves in gold, but this requirement was eliminated after a popular referendum in 1999.
How Much Is the Swiss Franc Worth in U.S. Dollars?
The Swiss franc is worth $1.09749 U.S. Dollars as of the time of writing, according to xe.com.
Is the Swiss Franc Stronger than the U.S. Dollar?
The U.S. Dollar has steadily lost value against the Swiss franc between 2019 and 2022, making the franc a stronger currency than the dollar.
