Facts about the Swiss Franc

The following facts about the Swiss Franc are presented in cooperation with Lånemäklaren and their sister site Lainanvälittäjä.

Swiss Franc is the official currency of Switzerland. The currency code for this currency is CHF and it is also used in Liechtenstein. The money is printed and issued by the Swiss National Bank (website).

The Swiss Franc comes in banknotes (bills) and coins. The mint is called Swissmint.
Swiss Franc's bill

The banknotes comes in eight different types:
1000 francs
200 francs
100 francs
50 francs
20 francs
10 francs

And the coins comes in this values:
5 francs
2 francs
1 francs (equal to 100 centimes)
½ francs (50 centimes)
20 centimes
10 centimes
5 centimes

A brief history of the Swiss franc

In the 1820s Switzerland had a number of different currencies all competing with each other from different banks. It was not until around 1850 when free banking arrived that multiple banks began issuing a single currency instead, the Swiss franc. Prior to its "official" recognition as a currency, the Swiss franc was only allowed to be distributed by the federal government. The first Swiss banknotes were not printed until 1907, after which up to eight different types of notes have also been introduced. Up to the 1930s the Swiss franc was driven by a gold-silver standard (later known as the gold standard).

The gold standard is a monetary system which connects money supply to gold automatically without being having to regulate or through a central bank. If a country end up supplying too much money, the gold reserves decrease and the country enters a "gold drain" phase. This was to try and prevent global imbalances since credit and spending is connected to the money supply. It was later suggested that this gold standard could have potentially prevented the financial crisis seen in 2008 which was caused by global imbalances. However this was not the case as the gold standard was abolished during the 1930s, hypothesised to be due to the Great Depression because of money being scarce and interest rates were too high.

Bretton Woods system

In 1945 the Bretton Woods system was introduced in hope of fixation of all other parties of currencies under the US dollar - and then set a standard for the US dollar.

This standard ended up being $35 for every ounce of gold. All the other currencies included in this system were obliged to fix their exchange rates to fit that of the US dollar (USD).

In the case of extreme imbalances occurring, it was deemed necessary to make changes to the parties included. Of course, such imbalances were seen every couple of years.

The countries that ran into this problem with negative trade balances most often decreased the value of their currency in order to compete with all the other currencies. Other countries sometimes tried reduced their debts by paying less interest on government bonds than the current inflation rate, amongst other things. It was important to try and find stability for currencies in order to avoid excessive imbalances that could lead to negative implications.

Switzerland is one of the countries that managed to establish itself as a stable currency for a number of reasons. Firstly, Switzerland had sound public finances and a positive trade balance which lead to a strong international investment position when they joined the Bretton Woods system. Due to its powerful position as international creditor, and the inflationary history of Germany in the 1920s threatening the Swiss currency, the Swiss ended up developing a distaste for inflation and the resulting financial repressions, leading to the development of prevention strategies. Over the years, wages were increased sparingly by small amounts, which led to lower inflation rates overall and smaller cost increases for all companies, beneficial even though the wages would not have increased by much.

The end of the Bretton Woods system saw the Swiss franc become even stronger as the USD/CHF rate rapidly fell from 4.35 to 2.35. This resulted in large capital inflows and inflation for Switzerland. This moment of high inflation was not to last though. In 1978 the first cap on the Swiss franc was introduced due to the inflation of the USD as to set a minimum charge on the Swiss franc. However, during these years many foreign workers left Switzerland to work in other countries, lowering the GDP and ultimately leading to a weaker franc. Things were still looking grim for the franc in 1981 when the Fed chairman adopted money supply targets along with high interest rates. Due to this the unemployment rate increased and unions gradually began losing power.

1985 onwards

Things took a turn in 1985 when the Plaza accord resulted in the USD falling due to not being able to reduce the trade deficit thanks to the ever rising oil prices. The Swiss inflation decreased giving the franc more power once again. This also resulted in the strengthening of capital in Japan and Germany as well as Switzerland.

However, in 1988 the CHF overshot due to a stock market crash. This came about because of high German spending and inflation, which led to an expansion of the Swiss franc.

As later realized, these spending's by the Germans were only temporary, as was the sudden expansion of the franc. Once the high interest rates hit, the Swiss real estate market got the raw deal and was completely destroyed. Thanks to this, most Swiss and Germans do not actually own their own their own home, as is pretty normal for most other Europeans. Instead, their home are owned by firms that finance all investments. They practically own and run the whole real estate market today.

Another real estate crash was experienced in 1992 in Switzerland as a cause of the global recession and the high interest rates. Once again, the overall house prices fell back to what they were in 1988. This detrimental aspect was not only felt in Switzerland, even Sweden and Finland experienced a similar real estate crisis.

Once the 1990s hit, Switzerland faced yet another inflation caused by the strong demand from Germany due to the country's weakening account surplus. Eventually after 1996, the Swiss franc was once again (mostly) correctly valued thanks to the 1991 boom and the high rates introduced in 1995. From this, the franc began to slowly grow once again.

More recently in 2015, the Swiss franc has yet again hit the wall. The Swiss franc was devalued which resulted in it shooting up to around 39% against the euro before settling at 17%. But why devalue such a powerful currency? Well, it all started back in 2011 when the Euro crisis hit. At the time, it seemed like the Euro was going to come to an end, instigating people to move their money to the safety of the Swiss banks as they used Swiss francs as their currency - much safer than the failing Euro.

This however resulted in a large amount of money flowing into Switzerland making the Swiss franc so expensive so that the prices of exported goods from Switzerland were becoming uncompetitive.

This was a major issue as Swiss exporters sell around 56% of all their goods to the EU.

This is why it was decided to eventually devalue the Swiss franc by printing more of it. Only a year later though, in 2012, the Euro faced yet another crisis, resulting again in more money pouring into Switzerland in another vicious cycle. At this point though, so much money was entering the Swiss banks that the currency cap was breached twice. Banks could literally not print money fast enough to keep the currency from increasing higher than originally planned. The printed money was then used to buy up euro-dominated assets to keep the exchange rate between the Swiss franc and the Euro at 1.2 Swiss francs per euro.

In the end, the Swiss National Banks (SNB) bought assets worth 80% of Switzerland's GDP, which is when it was decided to stop doing so. Around the same time, Russia was also running into a financial crisis, boosting the amount of money still flowing into Switzerland - which is why the SNB stopped buying the euro-dominated assets. Rounding this all up, the Swiss franc is now stuck in deflation. The SNB are trying to remedy this by charging people more to hold their money in Swiss banks (negative interest rates) but this has turned out to not be enough to prevent the deflation. The charges set up by the SNB on some deposits reach as high as 0.75%. All the single-sight deposit accounts are effected by the negative interest rates. Even with this long history of ups and downs experienced by the Swiss franc, today it is ranked 5th or 6th in value, as mentioned earlier.

This is just a brief summary of how the Swiss franc has changed over the years. Currencies rise and fall through the ages through our actions, small and large - such as deciding which country to work in, effecting the overall GDP. Over the years, many currencies have gone up and down in a never ending circle. When looking at the Swiss franc for example in 1907 25.22 CHF was equivalent to one British pound (£1). Today the exchange rate between these two currencies is 1.5 CHF to £1, a huge difference.

Other interesting facts

The actual name 'franc' originates from the Latin words 'Francorum Rex' (King of Franks), which has been found inscribed on old French coins, and the currency code (CHF) of the Swiss franc stands for 'Confoederatio Helvetica Franc'.

As mentioned earlier, Switzerland and Liechtenstein decided against joining the European Union, which is why they do not use the Euro as their currency. However, almost all of the prices are indicated in Euros to aid tourists making it a lot easier to compare the prices. In addition to this, some merchants even accept Euros as payment (but they are not obliged to do so). In most of these cases, the change returned will be in the form of Swiss francs.

Switzerland

Now that we have heard so much about the Swiss franc, let's look more closely at the countries it is associated with; Switzerland and Liechtenstein.

Starting with Switzerland, there are several must-see iconic locations that make any holiday here worthwhile. One such location is the Jungfrau region. This picturesque landscape is the home to the three mountains; Jungfrau, Monch and Eiger. In the summer, you can choose to explore over 500 km of walking and hiking paths.

Be it winter or summer, there will be snow about so you can also have fun with winter footpaths and toboggan courses. Whilst exploring all this, the beautiful mountain lakes and huge waterfalls will be there to ever improve your visit.

If you are more interested in the winter sports aspect, such as skiing, then have no fear as this is also provided in the Jungfrau region. With a total of about 213 km of ski runs, all from beginner to expert, there is something for everyone here.

Anoher location loathe to miss is the Matterhorn in Zermatt. This is the most famous peak that can be found in the Alps with a height of 4,478 meters high. Mountaineers from across the world travel here in the hope of conquering this peak. Along with this, skiing and many a lovely view can also be found in Zermatt.

If you are not super interested in hiking and winter sports, there are other regions in Switzerland that may call out to you more. One such place is Montreux. This town can be found in the Swiss rivera by Lake Geneva. Activities such as exploring Chillion Castle, lakeside walks and tours of the dungeons are all available here. Documents date the first mentioning of the castle way back in 1150, resulting in a mass amount of history being linked to this location. Guided tours and audioguides are readily available for those who want to learn more about this history. For those who prefer to casually stroll around exhibits and the beautiful castle ground can also do so.

Of course, Switzerland would not be complete without its own national park. This park is located in the east of Switzerland and has an area of 174.2 km2 (with plans to expand). This makes it the largest protected area in the country. It was founded in 1914 making it one of the earliest protected national parks in Europe. However, it has very strict visitation rules such as no dogs allowed and that it is forbidden to remove ANYTHING from the park (plants etc.).

Along with this, it is also forbidden to leave the road set out in the park. When comparing it to other European national parks, the Swiss national park has the highest protection level and is classed as a strict nature reserve. Even with such strict rules, it is well worth a visit for some of the most picturesque views in Switzerland. If you are not super interested in nature walks or parks, there is always the Fasnacht Spring Carnival. This carnival is held once a year in Basel, Switzerland's 2nd largest city. This three-day festival begins on the Monday after Ash Wednesday. It is world-famous for its colourful costumes and fabulous masks that participants will wear whilst parading down the streets of Basel.

All in all, from nature walks to winter sports to historical locations and world-famous festivals, Switzerland has a little bit of everything.

Before venturing off on any planned excursion though, it is important to take the climate into account as well. Switzerland is home to a temperate climate in the populated regions, whereas the mountain ranges are covered in a dense layer of ice and snow. An easy way to prepare yourself is to remember that temperatures lower by about 1°C per 150 m increase in altitude. As a quick example, if you are planning on seeing glaciers or scaling mountains, your day could start as a hot summers day of about 30°C in the midlands, only to change to cold winter day temperatures of around -2°C.

Liechtenstein

The second country which has the Swiss franc as its official currency is Liechtenstein. Liechtenstein is a small independent state located between Switzerland and Austria, and has also been called one of the most beautiful and picturesque alpine regions in Europe. With only 35,000 inhabitants and a total size of 160 km2, Liechtenstein still has a lot to offer to its inhabitants and all visitors.

Similarly to Switzerland, there are a thousand and one things to experience here (and spent your francs on).

One place you should be sure to visit is Vaduz - the capital city of Liechtenstein. This tiny city (Europe's smallest capital city to be precise) offers a tourist information centre which will help you plan your days here. Some of the main attractions available in this city include a visit to the parliament buildings along with the Rathausplatz - home to the town hall and the picturesque Neo-Gothic parish church.

Even though Liechtenstein is a very small place, there are still things to do outside the capital, so don't limit yourself! Another must-see location is the Gutenberg Castle located in the south of Liechtenstein, close to the village of Balzers. This castle has bene dated back to the Middle Ages, and the hill it stands on is said to have been inhabited ever since the Neolithic. Many priceless historical archaeological finds have been recovered from this area, including the ancient Mars von Gutenberg statuette.

With Liechtenstein being a mountainous principality, many tourists visit for the fabulous skiing opportunities available here - similarly to Switzerland. One famous skiing resort in Liechtenstein is found in Malbun, which offers slopes for everyone as they range from beginner, to expert slopes. Incidentally, the winter resort in Malbun is the only one that exists in Liechtenstein. Due to its amazing snow conditions, the resort was first opened in the 1960s. Today, this resort experiences one of the longest seasons in the Alps, and all the slopes are constantly groomed for the pleasure of all the visitors. For tourists who are not interested in utilizing the ski slopes in Lichtenstein, Switzerland is a short distance away. This makes it very easy for day-tripping to Switzerland whilst staying in Liechtenstein.

However Liechtenstein does not only offer winter sports and historical places to visit. It also has a vast amount of walks available (for being such a small country). Hundreds of trails for both hiking and biking are available all across this principal.

To briefly conclude...

The Swiss franc has been through a lot of ups and downs through its time, and this is not something that will likely soon change.

With the Euro (and sometimes other currencies) running into various crises over the years, more money will continue to flow into the SNB which could potentially lead to a more damaging deflation. Even with all this, the Swiss franc continues to be a very strong currency (which is why people want to store their money with them rather than in the EU). Their economy always welcomes visitors and there is definitely a lot to be said in visiting either Switzerland or Liechtenstein. Hopefully with the years to come, the Swiss franc will remain as a strong currency and continue growing.

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