By: Dr. Mike Campbell
Switzerland is a Federal state made up of its cantons. It has three main languages; French; German and Italian. The country is not part of the European Union although it is a member of the European Free Trade Association (EFTA) and it has its own currency, the Swiss Franc. The country, unlike many developed economies, is not saddled by huge debts and has a low rate of unemployment.
The Swiss franc has been seen by investors as a safe haven in troubled times. With the US economic recovery being less than wholly convincing, the Eurozone struggling under the sovereign debt crisis and Japan having its own problems, the Swiss Franc has attracted a lot of investment. This has led to the Franc hitting an all time high against the US Dollar (yesterday), trading at 0.945 CHF to the Dollar.
The Swiss Franc hit an all time high against the Euro just before Christmas with € 0.8035 buying just 1 CHF. (it is currently trading at 0.7992 CHF).
The Swiss have little by way of natural resources and must import all their requirements from abroad. On the positive side, a high Swiss Franc means that the cost of importing raw materials has fallen. However, the other side of the Swiss balance of payments issue is that they sell high value and high quality goods to the rest of the world.
As the value of the Swiss franc has risen, these exports have become more expensive in importing markets – the same problem facing the Japanese. Like the Japanese, the Swiss government intervened in the currency markets to depreciate the Franc, but, just as was the case with Japan, the intervention proved ineffective.