The Swiss currency, known as the Swiss franc (CHF or SFr), is the official currency of Switzerland and Liechtenstein. It is the fifth most-traded currency in the foreign exchange market after the US dollar, the Euro, the Japanese yen and the pound sterling. Switzerland had a very complex monetary system, with each federal state (canton) of Switzerland having adifferent currency. The Swiss franc was officially adopted by the Swiss Federal Government in May 1850 in order to simplify this system.
The Swiss currency was initially linked to gold in the 1920s, which required the currency to be backed by a minimum of 40% gold reserves. However, this system was terminated in March 2008, at which point the nation held 1,290 tones in gold reserves.
Swiss Currency: Unique Characteristics
The Swiss franc has remained relatively stable against the Euro since mid-2003 at 1.55 CHF per Euro. It fluctuates against theUS dollar in parity with the Euro. The Swiss franc has little purchasing power, despite the currency trading in the range of80 to 90 US cents. In Switzerland, the cost of goods is approximately twice that in the US. The low purchasing power of theSwiss franc is due to its wide use as a reserve currency by a number of entities across the world.
Devaluation of the Swiss Currency
Switzerland is famous as a safe haven for investors and attracts significant foreign investment. This safe-haven statusstrengthened during the global recession, pushing the Swiss franc to record highs against the Euro and the US dollar between December 2008 and January 2009. The Swiss National Bank intervened by cutting the key rate by 0.5% in December and a quarter point to a record low of 0.25% in mid-March 2009. This exerted pressure on the Swiss franc, brining it down to USD0.87 and 0.66 Euro in April 2009.
Swiss Franc Exchange Rate
The table shows the exchange rate trends of the Swiss franc against other major currencies (as on January 1):
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