Switzerland lies at the geographical heart of Western Europe. It is a member of the European Free Trade Association and has its own currency, the Swiss Franc. Switzerland is a significant power in the banking and financial world and has long been regarded as a rich, stable country. For these reasons, the Swiss currency has long been regarded as a safe-haven currency in times of raging economic storm or when a potential storm is brewing.
Before the Global Financial Crisis really got going with the collapse of Lehman Brothers in the autumn of 2008, the Euro was worth about 1.60 Swiss Francs. Following Lehman’s collapse, this dropped to 1.44, but as the European sovereign debt crisis began to take off and as in-flows of investor’s funds were parked in the Swiss Franc, the rate to the Euro fell to 1.045 in August of 2011.
The Eurozone is a major trading partner of Switzerland and such a rise in the value of the Franc could no longer go unchecked. The Swiss National Bank (SNB) decided to intervene in the markets to peg the Swiss Franc to a range against the Euro with a desired value of approximately 1.2 Swiss Francs to the Euro. It has managed this goal with stunning success since the late summer of 2011. Over this period, the Euro has depreciated from 1.137 to 1.275 against Sterling and from 1.442 to 1.229 against the US Dollar.
The recent collapse of the oil price and general weak demand in the global economy together with the looming financial crisis in Russia and geopolitical tensions and conflicts in various regions of the world have attracted funds into the Swiss Franc, causing it to appreciate slightly against the Euro. The SNB has acted to nip this trend in the bud by imposing a negative interest rate of -0.25% on deposits larger than 10 million CHF held by the bank. The rate applies to “sight”, or instant access deposits held with the bank.