Swiss Franc-CHF
The Swiss Franc is a legal tender used both in Switzerland and Liechtenstein. In the foreign exchange market, the Swiss franc is denoted as CHF. It is also the official currency in the Italian exclave Campione d’Italia.
Even though the franc is not a legal tender in the German exclave Büsingen (the official currency is the euro), it is extensively used in its financial system. While the Swiss National Bank issues banknotes, the federal mint, Swissmint, issues coins.
After the introduction of the euro, the Swiss franc is the only version of franc still issued in the Europe. The Swiss franc is spelled differently among all its cantons. In German franc is Franken, in French and Romansh it is franc and in Italian it is franco.
The smaller value, a hundredth of a franc, is a Rappen (Rp.) in German, centime (c.) in French, centesimo (ct.) in Italian, and rap (rp.) in Romansh.
The ISO code for Swiss franc used by banks and financial institutions is CHF, however “Fr.” is widely used by most businesses and advertisers; even as some use SFr; the Latinate “CH” denotes Confoederatio Helvetica.
Since Switzerland has quadric- lingual populace, Latin words are employed on coins, for maintaining language neutrality.
History
Prior to 1798, around 75 entities were producing coins in Switzerland, which included 25 cantons and half-cantons, 16 cities, and abbeys. As a result, for a time there approximately 860 varied coins under circulation. All of these coins had different values, denominations and monetary regimes.
The local Swiss currencies were known as Basel thaler, Berne thaler, Fribourg gulden, Geneva thaler, Geneva genevoise, Luzern gulden, Neuchâtel gulden, St. Gallen thaler, Schwyz gulden, Solothurn thaler, Valais thaler and the Zürich thaler.
Franc of the Swiss Confederation 1850
While 22 cantons and half-cantons issued their own coins between 1803 and 1850, less than 15% of the money within circulation in Switzerland in 1850 was locally produced. The major part of money came from foreign, mainly by brought back by mercenaries.
Besides, some private banks also began issuing the first banknotes, and as a result, a minimum of 8000 different coins and notes were in circulation at that time. Monetary system was very complicated owing to different coins
With the aim of solving this problem, the new Swiss Federal Constitution of 1848 stipulated that the Federal Government would be the only entity responsible to issue money in Switzerland. This rule was implemented after two years by the first Federal Coinage Act, passed by the Federal Assembly on 7 May 1850, which made the franc as the only monetary unit of Switzerland.
To begin with, the Swiss franc was introduced at par with the French franc. The introduction of franc replaced the varied currencies of the Swiss cantons, some of which had been using a franc (divided into 10 batzen and 100 rappen) which valued at 1½ French franc.
Then in 1865, France, Belgium, Italy, and Switzerland created the Latin Monetary Union, where they decided to value their national currencies to a standard of 4.5 grams of silver or 0.290322 grams of gold. In 1920s, the monetary union started to fade away, while it officially ended in 1927, the Swiss franc continued on that standard until 1936, when it had to go through its sole devaluation, on 27 September during the Great Depression.
The Swiss franc was devalued by 30% even as other currencies such as British pound, U.S. dollar and French Franc, devalued their currencies.
In 1945, Switzerland adopted the Bretton Woods system and pegged the franc to the U.S. dollar at a rate of $1 = 4.30521 francs (equivalent to 1 franc = 0.206418 grams of gold).
Later in 1949, it was changed to $1 = 4.375 francs (1 franc = 0.203125 grams of gold).
In the period from mid-2003 and mid-2006, the franc’s exchange rate with the euro was stable at a value of about 1.55 CHF per euro. There were no volatile fluctuations as the Swiss franc rose and fell in tandem with the euro against the U.S. dollar and other currencies.
However, in March 2008, for the first time, the Swiss franc traded above the U.S dollar.
The Swiss franc has traditionally been considered a safe-haven currency with practically zero inflation along with a legal requirement that a minimum of 40% be backed by gold reserves.
Nevertheless, franc’s link with gold – a requirement since 1920s- was terminated on 1 May 2000 following a referendum. In March 2005, subsequently to a gold selling program, the Swiss National Bank kept 1,290 tons of gold in reserves which was equivalent to 20% of its assets.
2011 appreciation
In March 2011 the franc edged past the US$1.10 mark (CHF 0.91 per U.S. dollar). In June 2011 the franc appreciated even further and reached to US$1.20 (CHF 0.833 per U.S. dollar) as investors amid economic uncertainty in the euro zone caused by Greek debt crisis, sought safer assets such as franc.
Deterioration of the debt crisis in Europe along with economic stagnation in the U.S. propelled the Swiss franc past US$1.30 (CHF 0.769 per U.S. dollar) as of August 2011, forcing the Swiss National Bank to increase the franc’s liquidity in an effort to handle its “massive overvaluation”.
Business journal such as The Economist argued that the Big Mac Index (a gauge on whether a currency is overpriced or underpriced) in July 2011 point out that Swiss franc was overvalued by 98% over the dollar.
Many companies had to issue profit warnings with many among them threatening to move their operations out of the country as their exports were being badly hurt. Amid heightening euro zone crisis, the demand for francs and franc-denominated assets was so high that nominal short-term Swiss interest rates turned negative.
Subsequently, on 6 September 2011 the SNB set a minimum exchange rate of 1.20 francs to the euro stating “the value of the franc is a threat to the economy” and that it was “prepared to buy foreign currency in unlimited quantities.”
Reacting sharply to the announcement, the franc dropped against the euro, to 1.22 francs from 1.12 franc while it plunged 9% against the U.S. dollar within fifteen minutes. The central bank’s intervention shocked currency traders since the franc had long been considered as a safe haven asset.
Later during the day, franc’s slide continued as it lost 8.8% against the euro, 9.5% against the dollar, and at least 8.2% against all 16 of the most active currencies in the foreign exchange market.
It was the biggest drop of the franc ever against the euro. Earleir in 1978, The SNB had set an exchange rate target and maintained although at the cost of high inflation.
Coins
Coins of Helvetic Republic
Between 1798 and 1803, billon coins were issued in several denominations such as 1 rappen, ½ batzen, and 1 batzen. Silver coins were also issued in denominations of 10, 20 and 40 batzen, with the 40 batzen coin issued with the denomination given as 4 franken. In 1800, gold 16 and 32 franc coins were also issue.
Coins of Swiss Confederation
Coins of the Swiss Confederation
In 1850, coins were issued in denominations of 1, 2, 5, 10, and 20 rappen and ½, 1, 2, and 5 francs, with the 1 and 2 rappen thumped in bronze, the 5, 10, and 20 rappen in billon, and the franc denominations in .900 were made out of fine silver. Amid 1860 and 1863, .800 fine silver was used, before the standard used in France of .835 fineness was implemented for all silver coins except for the 5 francs (which remained .900 fineness) in 1875. In 1879, billon was substituted by cupro-nickel in the 5 and 10 rappen and by nickel in the 20 rappen.
Both world wars only had a little impact on the Swiss coinage, with brass and zinc coins being issued for a short period. In 1931, the size of the 5 franc coin was shrunk from 25 grams to 15, with the silver content lessened to .835 fineness. The following year, nickel substituted cupro-nickel in the 5 and 10 rappen.
Later during late 1960s, due to their relationship to the devaluing U.S. dollar, the prices of globally traded commodities increased drastically. A silver coin’s material worth surpassed its monetary value, and many were being sent overseas for melting, which pressed the federal government to declare this practice illicit. The statute was of little effect, and the melting of francs only dropped when the collectible value of the remaining francs again surpassed their material value.
The 1 rappen coin was still made until 2006, although in ever declining quantities, but it did not play any prominent part in the monetary economy in the fourth quarter of the twentieth century (about 1975 to 2000). People and groups who could validate the use of 1 rappen coins for monetary purposes could get them at face value; any other user (such as collectors) had to shell out an extra 4 rappen per coin to cover up the production costs, which went beyond the actual face value of the coin for many years. The coin fell into abandonment in the late 1970s and early 1980s but was only formally fully withdrawn from circulation and declared to be no more legal tender as of 1 January 2007. The 2 rappen coin, which was used long back, and not minted since 1974, was demonetized 1 January 1978
The designs of the coins have altered very little since 1879. Among the prominent changes were fresh designs for the 5 franc coins in 1888, 1922, 1924 (minor) and 1931 (mostly just a size reduction). Since 1948, a new blueprint for the bronze coins was used. Coins illustrating a ring of stars were altered from 22 stars to 23 stars in 1983; since the stars symbolized the Swiss cantons, it was updated to signify the 1979 expansion of the Swiss federation, when Jura separated from the Canton of Bern and became the 23rd canton.
The 10 rappen coins designed after 1879 (except for the years 1918–19 and 1932–39) have had the same work of art, size and design until now (2011) and are still considered as official tender and found in circulation.
As four languages are spoken in Switzerland, all Swiss coins are language-neutral, comprising of only numerals, the abbreviation “Fr.” for franc, and the Latin expressions “Helvetia”, “Confœderatio Helvetica” (depending on the denomination) or the word “Libertas” (roman deity of liberty) on the small coins. The name of the artist is present on the coins with the standing Helvetia and the herder.
In addition to these commonly circulated coins, numerous series of commemorative coins have been issued, as well as silver and gold coins. These coins are not considered as legal tender anymore, nevertheless can be exchanged for face value at post offices, and at national and cantonal banks. Their substance or collector’s value equals or worth more their face value.
Banknotes
In 1907, the Swiss National Bank undertook the responsibility of issuing banknotes from the cantons and numerous other banks. It introduced new denominations of 50, 100, 500 and 1000 francs. 20 franc notes were introduced in 1911, followed by 5 franc notes in 1913. In 1914, the Federal Treasury started issuing paper money in denominations of 5, 10 and 20 francs. These notes were circulated in three different versions: French, German and Italian. In the same year, The State Loan Bank also issued 25 franc notes. Then in 1952, the National Bank stopped issuing 5 franc notes however introduced 10 franc notes in 1955. In 1996, bank notes having 200 as a denomination were introduced even as the 500 franc note was discontinued.
So far, the National Bank has printed eight series of notes, six of which have been circulated for use by the general public.
The sixth series from 1976 which was designed by Ernst and Ursula Hiestand, depicted on it people from the world of science. It has been recalled and substituted and will lose any value on 1 May 2020. Until 2010, a large number of notes from this series have not yet been replaced, in spite of not being a legal tender for more than 10 years; for instance, the worth of those 500 franc banknotes still in circulation amounts to 129.9 million Swiss francs.
In 1984, the seventh series was pinted , but kept as a “reserve series”, not ready to be circulated, for example, wide counterfeiting of the this series suddenly emerged. When the Swiss National Bank decided to bring in new security features and to discard the concept of a reserve series, the details of the seventh series were released and the printed notes were obliterated.
The eighth series of banknotes was designed by Jörg Zintzmeyer revolving around the theme of the arts and released starting in 1995. Apart from a new design, this series was varied from the earlier one on several counts. Probably the most significant difference from a realistic point of view was that the sparsely-used 500 franc note was replaced by a new 200 franc note; this new note has without a doubt proved more successful than the old 500 franc note.
The base colors of the new notes were akin to the old ones, with the exception of 20 franc note which were changed from blue to red to stop a frequent confusion with the 100 franc note, while the 10 franc note was changed from red to yellow. The size of the notes were altered as well, with all notes from the 8th series measuring the same length (74 mm), whilst the widths were changed as well, still increasing with the value of the notes.
The new series includes many more security features than the earlier one; many (but not all) of them are now clearly displayed and have been extensively advertised, in contrast with the preceding series for which a good number of the features were kept undisclosed.
All banknotes are quadric-lingual, exhibiting all information in the four national languages. The banknotes portraying a Germanophone person have German and Romansch on the same side as the picture, while banknotes portraying a Francophone or an Italophone person have French and Italian on the same side as the picture. The back has the other two languages.
At the end of 2000, when the 5th series lost its legality, the banknotes that had not been exchanged represented a total worth of 244.3 million Swiss francs; in accordance with Swiss law, this amount was kept reserve as a Swiss Fund for Emergency Losses in the case of non-insurable natural disasters.
In February 2005, a contest was announced for the design of the 9th series, which was slated to be released in 2010. The theme for this series was Switzerland open to the world. The results were announced in November 2005; however, the selected design drew lots of criticisms from the population.
Circulation
By the end of March 2010, the total value of released Swiss coins and banknotes stood at 49,664.0 million Swiss francs.
Reserve currency
Thanks to its stability, the Swiss franc is used as a reserve currency around the world and is at present ranked r 5th or 6th in value held as reserves after the United States dollar, the euro, the Japanese yen and the pound sterling.
The Swiss national Bank
The Swiss National Bank (SNB) is the Federal of Switzerland. It is in charge for Swiss monetary policy and for the issuing of Swiss franc banknotes.
Approximately, 55% of its shares are owned by public institutions like cantons and cantonal banks. The outstanding shares are traded on the stock market. They are typically owned by private individuals. The Swiss National Bank has two head offices, one located in Bern and the other one in Zurich.
Responsibilities of Swiss bank
Monetary policy
The Swiss National Bank manages the country’s monetary policy as an autonomous central bank. It is obliged by Constitution and law to act in accordance with the interests of the state as a whole. Its main objective is to ensure price stability, while taking a complete account of economic developments. With these objectives in mind, the SNB creates an appropriate environment for economic growth.
Cash supply and distribution
The National Bank is assigned with the right if issuing notes. It supplies the financial system with banknotes that meet high standards with regard to quality and security. It is also charged by the Confederation with the task of coin distribution.
Cashless payment transactions
In the field of cashless payment transactions, the National Bank offers services for payments between banks. These are settled in the Swiss Interbank Clearing (SIC) system by means of sight deposit accounts held with the National Bank.
Investment of currency reserves
The National Bank supervises currency reserves. These bring about confidence in the Swiss franc, help to avert and overcome crises and may be used for interventions in the foreign exchange market.
Financial system stability
The National Bank helps maintaining the stability of the financial system. Within the framework of this task, it analyses sources of risk to the monetary system, administers systemically important payment and securities settlement systems and helps to promote an operational environment for the financial sector.
International monetary cooperation
Along with the federal authorities, the National Bank takes part in international monetary cooperation and offers technical assistance.
Banker to the Confederation
The National Bank performs as banker to the Swiss Confederation. It processes payments on behalf of the Confederation, issues money market debt register claims and bonds, manages the safekeeping of securities and carries out money market and foreign exchange transactions.
Statistics
The National Bank collects statistical data on banks and financial markets, the balance of payments, the international investment situation and the Swiss financial accounts.
Banks in Switzerland
All banks in Switzerland are controlled by Swiss Financial Market Supervisory Authority (FINMA), which derives its authority from a series of federal laws.
By the end of 2008, there were 327 authorized banks and securities dealers in Switzerland, ranging from the “Two Big Banks” down to small banks serving the requirements of a single community or a few out of the ordinary clients.
UBS and Credit Suisse are respectively the largest and second largest Swiss banks and account for over 50% of all deposits in Switzerland; each has widespread branch networks right through the country and most international centre.
Due to their size and complexity, UBS and Credit Suisse are subject to an additional degree of supervision from the Federal Banking Commission.