By: Dr. Mike Campbell
Switzerland is suffering from being just that bit too stable and reliable. With many of her neighbours suffering from doubts about the long-term viability of the Euro, debt or sluggish economies, Switzerland and the Swiss Franc has become a very attractive safe haven in the current “long winter” of economic storms. It provides a safe place where investors can park their funds until the storm blows over and more lucrative opportunities (finally) present themselves.
As the gathering clouds of the global financial crisis started to gather in the summer of 2007, one Euro would buy you CHF 1.6645; by the 10th of August 2011, this rate had fallen dramatically with €1 buying just CHF 1.0451. This means that together with the fallout to Swiss industry and business stemming directly from the global financial crisis, the Swiss have to contend with the fact that their exports to their largest trading partner (the EU) have risen by 60%. This is provoking fears within Switzerland that the “currency crisis” will force the nation into recession.
The Swiss National Bank has taken action to weaken the currency and has stated that it will continue to intervene in the markets to sustain an exchange rate of (at least) CHF 1.20 against the Euro. The move, which started in earnest yesterday, is enjoying success at the moment. However, the record of currency intervention by state actors has not had a very successful history. The reason for this is that the money in the market is substantially higher than any nation can inject, so if there is a conviction amongst major investors that the Swiss Franc is the safe haven, then it is unlikely that the Swiss National Bank will be able to stem the tide. It will be interesting to see how alternative safe haven currencies such as the Yen and the Australian Dollar fare in the short term.