CHF (Swiss Franc)

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.

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.