The strength of the Swiss franc (CHF) has been the topic of countless “expert” analyses for over a year and it has received considerable coverage in the mainstream financial press. In fact, the last time the currency garnered this much interest was probably in 2011, when its celebrated “safe haven” status backfired, as investors fled to it in droves and pushed the price to levels that forced the Swiss National Bank (SNB) to intervene and peg it to the euro. Or perhaps it was when that cap was lifted in 2015, again making intentional headlines.
The renewed attention it has been attracting more recently, however, has nothing to do with truly “breaking news” of that nature. It has to do with its impressive performance, comparative to other currencies, and arguably with the fact that some investors and analysts have finally come to understand the value of looking at a longer time frame in their assessments, rather than merely focusing on short term fluctuations. Indeed, in this context, the CHF does stand out. The currency’s reputation for stability has been earned, proven and well established for decades. Price surges during economic crises and market meltdowns have clearly and repeatedly demonstrated as much and they continue to do so.
There are good reasons for that. Compared to other fiat currency issuers, Switzerland is definitely more economically stable, its credit rating has been dependably robust, it boasts a considerable current account surplus and it has generally exerted relative budgetary discipline. And it’s still a proponent of it, as in late August, the small alpine nation joined finance ministers of Germany, Luxembourg, Austria, and Liechtenstein in a joint statement appealing for a return to disciplined government spending and for an end to fiscal expansionism in Europe. There are also historical, geopolitical and even cultural reasons for the trust placed in the Swiss currency. For example, more sophisticated and seasoned investors understand the importance of the nation’s track record of neutrality and highly value its political stability, legal predictability and consistent respect for private property.
Especially in recent years, after all the trials and tribulations of the covid crisis and the resulting global inflation wave, of the Ukraine war and the energy crisis, and of the generalised geopolitical and economic uncertainty that reigned supreme during this period, the franc once again proved to be resilient. It is therefore hardly surprising that the CHF’s performance is attracting attention and that it is widely considered a true “hard currency”.
There is one serious flaw in this assessment though. The CHF is still fiat money and as such, it can never be described as a “hard currency”. Granted, it is better than its peers in speculative terms. In a real, intrinsic value context, nevertheless, it is worth no more than the Venezuelan Bolivar.
A recent article in cash.ch perfectly and succinctly illustrates this all-important distinction between relative price and actual value, albeit entirely unwittingly. The author dedicated nearly the entire piece to exalting the franc’s phenomenal performance against its fiat peers, comparing price data since 2007 and pointing at relevant charts and figures that clearly support his thesis, e.g. highlighting that Swiss inflation peaked at 3.3%, while it reached 9% in the US and over 10% in the Eurozone. It is only at the very last two sentences of the whole article where he fleetingly mentions, as a trivial side note, that “incidentally, the franc has been “beaten” by precious metals since autumn 2007. Palladium gained 150% against the Swiss currency, gold 82% and silver 21%.”
Of course, the glaring absurdity of this statement is lost on most investors; to them, it is merely an irrelevant observation. Precious metals owners, however, clearly see how this straightforward and indisputable fact invalidates the entire argument in favor of the franc’s “superiority”. If anything, it is simply the “best bad choice”, not unlike the one between pest and cholera.
In all fairness, for the mainstream investor, the CHF will obviously be a better option than the USD that is only propped up by its reserve status which is increasingly challenged and will likely soon be irrelevant and certainly better than the entirely artificial “Frankenstein-currency” that is the euro. However, at the end of the day, they all have a common denominator and it is their complete and utter lack of any real value.
The CHF may enjoy more trust, but this trust is derived not from the Swiss state or from the SNB, but from the country’s heritage, its history and ultimately, its people and their values. This is the real basis of the Swiss safe haven. And the only sound way of investing in it is the direct one, not by relying on a piece of paper issued by whomever happens to rule the country at the moment, but by trusting what this country is actually built on, with the only real “hard currency” there is: “real money” made of gold and silver without any sort of counterparty-risk.
Claudio Grass, Hünenberg See, Switzerland
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