With so much monetary uncertainty, investors seek to put their capital in safe haven assets. One of the most liquid alternatives is investing in Swiss Francs. It is undoubtedly the strongest currency in the world.
- The strongest currency in the world
- How to invest in Swiss Francs
- Risks of investing in Swiss Francs
- Alternatives to the Swiss franc
The decade of the 2020s has begun with significant volatility and uncertainty in social, economic, fiscal, and monetary realms. All this has brought investors to a state of alert that has not been experienced in several decades.
The gigantic budget deficits of 2020 and 2021 led to the highest inflation rates in developed economies since the early 1980s. As a result, 2022 saw the most aggressive interest rate hikes since 1980. Adding to the challenges, 2023 has been marked by economic turbulence and banking crises.
The volatility in the foreign exchange and interest rate markets is unprecedented. The combination of high inflation, volatile interest rates, unstable exchange rates and bank failures has caused reason for panic and monetary uncertainty.
Investors around the world have been looking for safe haven assets in which they could protect the value of their savings. One of the alternatives is investing in Swiss francs. The Swiss currency is quoted under the code CHF in international markets.
In the next sections, we will explore why the Swiss franc is a symbol of stability in both monetary and political matters, and discuss various options for investors seeking to acquire this resilient currency.
The strongest currency in the world
If we wanted to determine which are the strongest currencies in the world, we could apply different criteria. This would lead to different results.
However, if we had to pick a single currency to be crowned the strongest in the world, and put our savings in it for a relatively long period of time, the best metric would be how its value has evolved relative to other currencies in the past.
In this sense, the Swiss franc is without a doubt the strongest currency in the world since the current monetary system was implemented at the end of World War II.
The title of world’s strongest currency belonged to the German mark. The German currency had recorded the lowest rates of inflation and depreciation against other currencies since 1945. However, it ceased trading on its own in 1999, when most European currencies were replaced by the euro.
In a world without the German mark, the crown of strongest currency went to the Swiss franc. Switzerland tends to register the lowest inflation rates. And the Swiss franc usually appreciates relative to other currencies as time goes by.
To put this in perspective, it is useful to take a look at the historical exchange rate between the Swiss franc and the US dollar. The dollar has been the world’s reserve currency since 1944, monopolizing international trade, the world of finance and central bank holdings, if we do not take into account physical gold.
In the 1940s, when the Bretton Woods monetary system was implemented, one US dollar was equivalent to 4.5 Swiss francs. In the mid-1970s, the dollar was trading at 2 francs. By the end of the twentieth century, the value of the dollar had fallen to 1.5 francs. And in 2023, a US dollar is already worth less than a franc.
If we were to make such analysis with other currencies, the results would be even more extreme. For example, one pound sterling was equivalent to almost 15 francs when World War II ended in 1945. In 2023, the British currency is trading just above parity with the franc.
The Swiss franc’s strength is due to Switzerland’s responsible fiscal policy, the monetary discipline of its central bank, and its prosperous and stable economy.
How to invest in Swiss Francs
Let us next discuss several ways in which we can invest in Swiss francs:
Bank deposit in Switzerland
The first option we are going to discuss might also be the most complicated. However, it offers additional advantages, such as moving our savings to a jurisdiction with a very strong rule of law.
Opening a bank account in Switzerland is within reach of many, but not all. Much of the paperwork can be done online or directly at a branch in the country. There are thousands of banks in Switzerland, from the largest one, UBS, to countless smaller private banks.
It is worth mentioning, though, that the process of opening a bank account in Switzerland can be significantly more difficult for US citizens.
The interest rate on Swiss franc deposits is very low. This is because the Swiss National Bank, the country´s central bank, uses low interest rates to prevent the franc from strengthening further.
Nonetheless, the appeal of investing in Swiss francs does not lie in the interest we may be able to collect, but in having a portion of our capital in a currency that has strong fundamentals.
Having a deposit in Swiss francs does not require a Swiss bank. Nowadays there are online banks such as Revolut or Monzo, headquartered in other countries, that allow us to hold deposits in multiple currencies.
This option is the easiest for those who simply want to buy some Swiss francs without having to open a bank account in Switzerland or look for investment vehicles.
At the same time, several online brokers, such as Interactive Brokers, also make it possible to hold various currencies, including the Swiss franc.
Swiss bond fund or ETF
Another option for investing in Swiss francs is to purchase a Swiss bond investment fund or ETF. This is especially useful if the investment fund invests in short-maturity bonds.
The advantage of such funds is that they make it possible for us to receive interest without having to buy bonds individually. One such ETF is the iShares Swiss Domestic Government Bond 0-3, managed by Blackrock. These ETFs are available through most online brokers.
It should be noted that investing in Swiss franc-denominated stocks, such as those of Nestlé or Novartis, cannot be considered a way of investing in Swiss francs. After all, the stock price of these companies is dependent on the state of the world economy and their own business, and not the value of the currency in which their stock is denominated.
Finally, for those who would like to hold such haven investment in their hands, there is also the alternative of cash. Swiss franc banknotes are available at traditional bureaux de change or banks.
Swiss franc banknotes are among the most beautiful in the world. Additionally, the Swiss central bank has been much more reluctant than other central banks on placing restrictions on the use of cash going forward.
Finally, Switzerland also has the most valuable cash note in the world. It is the 1,000 Swiss franc note. For this reason, it is possible to store a considerable amount of wealth in an instrument that takes up little space and is very light.
Risks of investing in Swiss Francs
While the Swiss franc is the strongest currency in the world, we must remember that it is still a fiat currency.
Fiat currencies are not backed by anything. That is, they are not backed by a certain amount of gold, silver, oil or any other asset. All currencies have been fiat since 1971, when the Bretton Woods monetary system ended.
As a result, the value of the Swiss franc is based on the confidence that investors place in it. Such confidence may deteriorate in the future if Switzerland experiences high inflation rates or a severe economic crisis that leads the Swiss government to implement a looser monetary policy with the goal to devalue the franc.
Over time, despite investor confidence remaining intact, the purchasing power of the Swiss franc is expected to decline gradually due to even low inflation. While this is not a problem in the short or medium term, it can be in the long term, especially if we hold our Swiss francs in a vehicle that does not generate any interest.
Realize, though, that both risks of investing in Swiss francs, the potential loss of confidence and inflation, are present in all fiat currencies. The franc is no exception. Fortunately, these risks are probably lower for the Swiss currency than for all others.
Alternatives to the Swiss franc
For those investors looking for safe haven assets, there are alternatives to the Swiss franc that can serve us well. These alternatives are very heterogeneous, so it may be interesting to invest in several of them at the same time.
When it comes to other fiat currencies, we could look into the US dollar, the Japanese yen, the Singapore dollar and even the euro. Because most of these economies suffer from major macroeconomic imbalances, it pays to hold a diversified basket of currencies. And it is worth exploring how we can generate interest income.
Another option is to invest in gold. Gold is the most famous haven asset. For this reason, it is what central banks around the world tend to hold for the long term.
Gold has been used as money for more than 5,000 years. And little indicates that things will change in the future. In fact, due to heightened monetary and geopolitical instability in the world, it is very likely that the role of gold in the international economy will increase in the coming decades.
In the long term, gold has always strengthened against all fiat currencies, including the Swiss franc. It is said to be the best instrument to protect the purchasing power of our capital over very long periods of time.
Lastly, for those willing to take on a higher level of risk, both silver and Bitcoin can be interesting investments in the years to come. This is especially true if gold also becomes more prevalent in international trade and investors´ portfolios.
Silver tends to rise more than gold when the price of the yellow metal increases. But it can also drop a lot more when the price of gold corrects.
For its part, Bitcoin represents a digital alternative to precious metals that is likely to gain adoption in the future. Although its price is highly volatile, this also means that it has the potential for great returns.
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Top 10 Reasons Why Switzerland is so Rich