Do you ever find yourself scratching your head, wondering why the Swiss franc has weakened so much in the past years? You’re not alone. Many of us in the finance industry have been asking ourselves this same question. Thankfully, the answer isn’t all that mysterious: there are several drivers that have contributed to the devaluation of the Swiss franc!
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Central Bank Intervention
The Swiss National Bank (SNB) was behind the biggest driver of Swiss franc devaluation over the past few years. A combination of negative interest rates, an expansive policy of quantitative easing and unlimited purchases of foreign currency all worked together to significantly weaken the franc. These policies were designed to try to stimulate the Swiss economy and support the export sector, and that was only possible if the Swiss franc became less valuable.
Global Recession
The devaluation of the Swiss franc was also caused by the 2008 global recession, which had a major impact on Swiss exports. During this time of reduced global demand for Swiss products, Swiss companies found they had to take drastic measures to keep their businesses afloat, and this included encouraging further sales by reducing prices. One way to reduce prices was (and still is) to try to reduce the currency value of the Swiss franc – a way to ensure that Swiss exports remain competitively priced.
Falling Gold Prices
As the global economy weakened and central bank interventions gained more traction, the Swiss gold reserves also played a significant role in the devaluation of the Swiss franc. When the gold prices fell in 2008, the Swiss franc was also heavily impacted, as it had been backed by one of the world’s strongest currencies for 100 years.
US Dollar Strength
Finally, the strength of the US dollar against the Swiss franc since the start of the financial crisis has also had an impact on the weakening of the Swiss franc. It is argued that the US dollar is the dominant currency, and that most currencies tend to weaken against it. In fact, all major currencies, apart from the Japanese yen, have weakened against the US dollar over the past few years.
In conclusion, the Swiss franc has weakened significantly over the past few years due to a combination of negative interest rates, interventions by the SNB, the global recession, the falling gold prices and the strength of the US dollar. While this has had a negative impact on the Swiss economy, it is good news for Swiss businesses that rely on exports and have become more competitive due to the devaluation of their currency. There you have it, the mystery of the Swiss franc is solved!