Encyclopedia of Money: Swiss Franc

Over the years Switzerland developed a legendary reputation for financial probity, helping to lift the Swiss franc above the crowd of national currencies and become a symbol of strength and monetary soundness. Internationally, it is a favored currency for hoarding money, partly because Swiss banking secrecy laws protect the anonymity of depositors in Swiss banks. International pressure has steadily eroded away some of the protection of anonymity afforded to depositors in Swiss banks, particularly for depositors engaged in criminal conduct.

In 1848 Switzerland adopted the French monetary system, preferring a coherent application of the decimal system. Switzerland had first tasted the French system during the Napoleonic era when France conquered Switzerland and turned it into the Helvetian Republic.

In 1860 Switzerland debased its subsidiary silver coins to prevent the exportation of its silver coinage. In 1865 Switzerland was one of the countries attending a conference in Paris that led to the formation of the Latin Monetary Union. Switzerland argued for the adoption of the gold standard and conversion of silver coinage into subsidiary coinage. The union agreement, however, provided for a bimetallic standard based on gold and silver. Switzerland, along with France, Italy, and Belgium, agreed to mint gold pieces only of 100, 50, 20, 10, and 5 francs. The union members agreed to mint a fully weighted 5-franc silver piece, but lower denomination silver coins became subsidiary coinage with reduced weight. Under the union agreement, coins from each country circulated freely in other union countries. After Germany adopted the gold standard in 1871 the Latin Monetary Union broke down, and the member countries adopted the gold standard.

During World War I the Swiss suspended the gold standard and the Swiss franc appreciated relative to the currencies of the belligerents, and even relative to the U.S. dollar. Following World War I Switzerland returned to the gold standard at its prewar parity and maintained parity through the 1920s and well into the 1930s.

During the Great Depression period Switzerland, along with France, Belgium, Holland, Italy, and Poland, organized a “gold bloc” that sought to withstand the pressures for devaluation. Switzerland devalued the Swiss franc long after the United States and Britain had devalued their currencies, and only after France had devalued the French franc in September 1936. The French franc and the Swiss franc were devalued by 30 percent.

During World War II the Swiss franc remained firm, but not as firm as during World War I. In July 1945 the Swiss franc traded at a 3 percent premium over the U.S. dollar. During the post–World War II era the Swiss franc remained strong relative to the dollar and Swiss authorities had to take steps to discourage demand for Swiss francs. Under the Bretton Woods System of fixed exchange rates, slightly over four Swiss francs were needed to purchase a U.S. dollar. After a system of floating exchange rates replaced the fixed exchange rate system in the 1970s the value of the Swiss franc rose relative to the dollar. In the late 1990s about 1.5 Swiss francs were needed to purchase a U.S. dollar.

Switzerland is home to the world’s largest gold market, and Swiss residents have always enjoyed unfettered freedom to hold gold, unlike citizens in the United States where the government outlawed the domestic ownership of gold in the decades immediately preceding and following World War II. Bank notes in Switzerland are backed by a minimum of 40 percent gold reserves, suggesting that gold is still important in Switzerland, even though none of the world’s major trading partners—including Switzerland—is now on a gold standard.