It may seem how having a sturdy currency is promising for a nation’s economy. Why then, is the Swiss National Bank hoping to keep franc’s value from increasing?
The previous week, Switzerland was placed on the ‘monitoring list’ of trading partners by the United States treasury, that merit attention to their currency-related operations.
This move was undertaken by the Swiss National Bank to try and weaken the value of the franc.
A reason behind the Swiss franc being so strong is the nation’s steady and robust economy. Switzerland’s economy has succeeded in resisting numerous crises with other nation’s financial markets have succumbed to.
While the global recession took place in 2008, investors from all around the globe sent their money to Switzerland to keep it safe. Through this dramatic incoming of money to the country, the value of the Swiss franc rose considerably. It rose from nearly 0.7 francs per euro to near parity.
Another contributor to the value of the franc is the country’s comparatively low national debt, which, added to the European debt issue, has raised the franc’s value.
Now how would Swiss franc’s sturdy value damage the Swiss economy?
It is known how the nation has a heavy reliance on exports, especially machinery, watches, pharmaceuticals, and instruments. More than 40% of Switzerland’s manufacturing is sent off to its chief trading associates in the European Union.
It won’t be wrong to say that exports are the main reason behind Switzerland’s success and its economic growth. However, when the value of the franc increases, Swiss goods are made less competitive, i.e., too costly, in the eurozone markets.
The government of Switzerland has taken steps to keep the franc from rising. In 2011, the Swiss currency was devalued by 8% when SNB capped the franc at 1.2 euros.