Swiss Franc Surges

Econintersect:  The Swiss Franc has surged in recent months, with gains of 20% against the Euro and 30% against the U.S. dollar over the past year.  This is producing a number of unusual situations.  For one thing, Der Spiegel reports that Swiss shoppers are swarming across the border to shop in Germany.  While good for the German border towns, it means less retail business inside Switzerland.  Swiss manufacturers and the crucial tourist economy are also suffering.  With costs rising dramatically in their own currencies once they enter Switzerland, the fear is that tourists will simply stay home.The Financial Times mentions things like “a greenback barely buys a package of chewing gum in Zurich” and “foreign tourists gasp at the price of a coffee” in the Alps.  According to Klaus Künzli, president of GastroSuisse, the hotel and restaurant trade association, “prospects for tourism are extremely uncertain.”

The Swiss national Bank (SNB), under bank governor Philipp Hildebrand, has been taking radical steps to stem the swelling tide pushing up the Swiss Franc (SFr).  From the Financial Times:

Mr. Hildebrand has tried less costly methods, flooding the money market with liquidity, while hinting at pegging the currency to the euro or introducing some form of floor level for the franc, as a last resort. This month, the central bank’s tap has produced a flood, raising to SFr200bn the liquidity it makes available, compared with a more normal SFr30bn. The increase has lowered already rock-bottom interest rates and even turned some very short-term rates negative – a deliberate disincentive to speculators to hold francs. The strategy appears to have turned the tide: politicians have stilled their criticisms and the franc has fallen more than 10 per cent against the euro. But the SNB admits the currency is still “massively overvalued”.

Despite all the difficulties, the Swiss are taking great pride in the strength of their currency.  Even if the changes produce a financial crisis, the Swiss would be reluctant to consider adopting the Euro.  One Swiss, quoted by Der Spiegel, said (about a switch to the Euro) “No way!  We are proud and happy that we have the Swiss franc.”

Sources:  Der Spiegel and Financial Times