What is behind the strength of the Swiss Franc? Dr. Hermann Stern explains some forces in the online coffee chat stock discussions of February 10th.
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The exchange rate of Swiss Franc depends on the demand for it, a lot of it now coming from abroad because it is seen as a safe haven to protect wealth. Many foreign investors actually hold Swiss Francs. They feel safer there compared to other currencies.
Another reason for the high demand for Swiss Francs is the strong export activity and that you need to buy Swiss Francs in order to buy in Switzerland. There is currently a trade surplus.
Also, some Swiss companies bring their profits back to Switzerland to be taxed there. When these profits are taxed in Switzerland, there is additional demand for Swiss Francs.
Finally, Switzerland has been a rich nation for a couple of decades now. So Swiss invest their wealth abroad, which means that when they bring the returns of these investments back home, demand for Swiss Francs increases. This has worsened since the credit crisis: most money now remains in Switzerland which creates even higher demand.
If some or all of these forces turn around, demand for Swiss Francs may fall and the currency weaken. This is not impossible as Switzerland isn’t as attractive for holding assets as it was before.
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