It’s only been a few weeks since the global elite gathered in Davos, Switzerland. Many of them will have had to change their dollars, euros and other currencies for local francs. Some of them might be considering keeping hold of their francs into 2025. Today we look at whether the Swiss franc retains it status as a safe haven in 2025.
Over the last few decades the Swiss franc has risen in value while many other currencies have struggled. This has reinforced the perception of the franc as a ‘strong’ currency that serves as a ‘safe haven’ in times like these. Against the dollar, the franc appreciated significantly since 2000.
Over the years the Swiss economy has had to evolve. Switzerland may still be considered a tax haven. In January 1980 the “Gordon Report” was released by the U.S. Department of Justice. In the report Switzerland was named as the “prototype of the modern tax haven.” Things have improved since then.
In 2021 Switzerland implemented an OECD minimum tax rate. This means that large multinational enterprises with a turnover of €750 million or more should pay at least 15% tax on their profits. This was implemented on the 1st of January 2024.
Is Switzerland Still a Tax Haven?
Trust in the Swiss currency depends on how Switzerland’s economy is perceived. The Swiss franc has many of the desirable attributes that the Japanese Yen used to have. However, the Japanese economy has taken a pummelling of late which has resulted in a plummeting Yen. The Yen has lost over 25% of its value against the greenback since 2000. The franc has appreciated by more than 50% during the same period.
Another common attribute of tax havens is the involvement of banks in providing secrecy for those seeking to move and hide money. This was alleged to be the case with HSBC’s private bank in Switzerland between 2005 and 2007. HSBC has since been fined $192 million in penalties for helping U.S. citizens evade taxes. It also brought an end to banking secrecy for clients in Switzerland.
A step to address this type of activity within banks has been the implementation of FATCA. The implementation of the ‘Model 2’ FATCA agreement means that Swiss banks must disclose details of U.S. client accounts to the IRS in the U.S. directly, with the consent of the client. It has helped to change the perception of Switzerland as a tax haven too. Banks and financial institutions tread carefully today.
How Does the Euro Affect the Swiss Franc?
The European Union is Switzerland’s main trading partner. Fifty percent of Switzerland’s exports go to the European Union and 70% of its imports come from the European Union. This reliance on the EU has long been a challenge for the Swiss. This was exacerbated in January 2015, when the Swiss National Bank abandoned the minimum exchange rate against the euro. This was due to the Swiss franc being overvalued compared to the euro. Something that was becoming increasingly hard for the Swiss National Bank to maintain.
The decoupling from the Euro had a huge impact on Europe, causing the price of the Swiss franc to skyrocket for several hours. It affected tens of thousands of Swiss franc mortgage holders in Hungary and Poland. It also affected exports of Swiss luxury products. Since this decoupling the Swiss franc has continued to rise against the Euro:
The Role of Quantitative Easing in Swiss Monetary Policy
In 2014, the European Central Bank, led by Mario Draghi, announced plans to engage in a form of quantitative easing. This new direction by the ECB was part of the reason that the Swiss National Bank decided it was time to decouple from the Euro.
It also led to many years of negative interest rates in Switzerland under the stewardship of then Swiss National Bank President Thomas Jordan. Jordan was the head of the SNB from 2012 until the middle of 2024. He oversaw some of the biggest challenges to face Switzerland in modern times.
In a speech at the IMF in 2020 Thomas Jordan shared how “the SNB was one of the first central banks to lower its monetary policy rate significantly into negative territory.” During the speech, Jordan explained how negative interest had proved their worth for Switzerland and had eased upward pressure on the Swiss franc.
Jordan highlighted the three reasons that the SNB intervened in the foreign exchange market:
- The capital market in Switzerland is small, this limits the size of a quantitative easing program
- The capital market in Switzerland plays a subordinate role in the transmission of monetary policy
- In Switzerland the upward pressure on the franc was the main reason for very low inflation
“Our experience shows that foreign exchange market interventions and the negative interest rate are essential for a small open economy with a safe-haven currency in a global low-interest rate environment,” Jordan explained.
What About Interest Rates in 2025?
One of the last things that Jordan undertook as President of the SNB was to cut interest rates in 2024. Switzerland was the first advanced economy to cut interest rates in the new high-interest rate environment we live in today. The new Chairman of the SNB is Martin Schlegel, who took over in October 2024.
In January this year, Schlegel was interviewed by broadcaster SRF. He didn’t shy away from saying that the SNB would consider using negative interest rates again in the future. This is being considered again due to inflation dropping to 0.6% in December.
Schlegel is taking on a heavy mantle from Jordan. He is working with an oversized balance sheet, an aggressive U.S. foreign trade policy, and a reliance on a struggling euro, making his job challenging to say the least. He may well have to lower interest rates from 0.5% to 0 in 2025. This would have repercussions for the Swiss franc.
Can the Swiss Franc Remain a Safe Haven Currency?
Japan and Switzerland share something in common. The use of quantitative easing. However, where the Swiss franc has remained stable and even strengthened against the dollar, the Japanese Yen has tumbled to new lows against the dollar since January 2022. This is partially to do with the reason for using quantitative easing in the two distinct jurisdictions. Switzerland had to do it to lower the value of the franc. Japan had to do it because deflation was a constant threat. Japan’s monetary policy was criticized as ‘tinkering’, whereas the Swiss were called ‘currency manipulators’.
As investors have fled the Japanese Yen, so we have seen a rise in demand for Gold in 2025 so far. In 2024 the Swiss National Bank made substantial profits ($6.55 billion in the third quarter of 2024). Much of these profits came from its gold holdings. Other profits came from stock holdings in Apple and Nvidia.
All the above should lead us to the conclusion that the Swiss franc will strengthen rather than weaken against the U.S. dollar in 2025. Inflation is set to remain low and the economy stable. And, with a global trade war underway, investors are already seeking out safe havens. As it is unlikely that Switzerland will return to a negative interest rate environment, this will mean the Swiss franc will be even more desirable.
Then, there are the rumours of a Swiss Bitcoin Reserve…
The Price of the Swiss Franc Compared to the U.S. Dollar in 2025
Analysts at the Royal Bank of Canada are bearish when it comes to the Swiss franc. They predict that the interest rate will be cut to 0 in 2025. And they are concerned that the SNB will return to a policy of buying foreign currency to keep the currency within manageable parameters. They foresee almost no change to the USD CHF rate in 2025. It will stay at around 0.91 Swiss francs to 1 U.S. dollar.
For now it appears that the market is concerned about the future price of the Swiss franc. And how much demand will be created that the SNB will have to mitigate. Technical indicators from TradingView suggest a ‘Sell’ sentiment amongst traders today. After scouring many different traders’ blogs and investment bank’s analyses, there is very little argument against the status quo remaining between the CHF and USD at the end of 2025. Making it at least a safe haven, if not an even stronger one, considering its performance over the last two decades.
DisruptionBanking is a media partner to the Point Zero Forum that takes place in Zurich this May. The annual gathering of the world’s financial regulators, policymakers, industry leaders, and innovators. In co-operation with the Monetary Authority of Singapore and the Swiss National Bank. To join our editorial team and to find out about tickets click here.
Author: Andy Samu
#Swissie #USDCHF #SNB #NegativeInterestRate #Inflation #SafeHaven #QuantitativeEasing #TaxHaven
The editorial team at #DisruptionBanking has taken all precautions to ensure that no persons or organizations have been adversely affected or offered any sort of financial advice in this article. This article is most definitely not financial advice.
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