The Swiss franc has been trading in the market as one of the best alternatives to the dollar when it comes being the primary and most trusted reserve currency.
Here are some of the best reasons the Swiss franc is a smart investment you should make today.
Secure, Low Risk, Inflation Protection
Across the world, investors search for better returns and security for their invested capital. Although bonds are secure, they usually provide lower returns. Meanwhile, stocks and other financial instruments offer higher returns but they also come with greater risks.
Inflation is another factor that diminishes returns. Investors find assets that strike the perfect balance: high potential returns, protection from inflation, security from risks.
The precious metal gold and the US dollar have been traditional assets. However, the Swiss franc has also gained a reputation as a good investment option because it satisfies all the above-mentioned criteria.
Geopolitics and Economy
Switzerland has a strong economic system that is comfortable with a limited yet realistic growth rate that has controlled requirements.
The key to Switzerland’s advantage is in its size. It’s a relatively small country with limited population. Also, there is an appropriate level of exploitation of natural resources. Investments in production and agriculture are limited. These are required to support stable ongoing economic growth.
No Deficit
Switzerland’s income tops its expenses, meaning there is really no deficit. This quality makes the country self-reliant, stabilizing the currency. At the same time, the economy has no plans for any large investments.
Gold Alternative
Inflation is the key reason why many investors choose to buy gold. The precious metal is used as a reserve across the world by different nations since it is considered to be a good hedge to inflation.
The Swiss franc has historically had stable status relative to inflation. This quality has led to huge influx of investments in the Swiss franc.
Independent Monetary Policy
The Swiss is not backed by gold. Switzerland’s central bank, the Swiss National Bank, can print any amount of the currency without any need for a reserve.
As a result, it is a form of quantitative easing, letting the central bank to independently control the currency rate.
For example, the European debt crisis has resulted in high demand for Swiss francs from the eurozone countries. This sent the Swiss franc valuation to higher limits.
It made the Swiss exports more expensive, while the franc’s high valuation threatened the Swiss economy.
The Swiss National Bank decided to peg the rate of the franc to the euro to at 1.2 euros. This lessened the effects of high demand for the Swiss francs.
Huge banks like UBS imposed a fee for large institutional investors who maintained a large amount of deposits in their accounts.
These moves discouraged the rampant buying of Swiss francs and stabilized the Swiss economy.
On the other hand, since the euro was pegged to the franc at a fixed rate, its decline against other currencies in 2014 led to the complete depreciation of the Swiss franc.
In a timely reversal action by the Swiss National Bank on January 15, 2015, the Swiss central bank removed the fixed price peg of the franc against the euro. This ensured that the Swiss franc retained its stability.
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