The Spike in the Swiss Franc: Virtual and Physical Currency Exchange

Switzerland is very well known as a haven, thanks to both its natural beauty as well as its discretion regarding finances. Swiss banks are famous throughout the world for being safe havens for ones money, an excellent way to save oneself from inordinate taxes. The effect this has had on the worlds economy, and the economy of Europe in particular, is vast. Countries that used the euro as their currency, certain countries with political climates more volatile than others, would often store vast amounts of money converted into Swiss francs. This resulted in a Swiss franc that was more economically powerful than the euro, despite the fact that Switzerland was one country that used a unique currency among dozens that used the standardized euro.

The economics of Switzerland took a startling turn in recent months. The spike in the Swiss franc caused many economists attempting to find the root cause of this spike, and after a lot of research the reason turned out to be fairly simple.

Switzerland is a tax haven, which means that people store their money in Swiss banks. To do so, they need to convert the currency their money was originally in into the Swiss currency which is francs. As a result, far more Swiss francs enter Switzerland than leave it, something that would drive the price of the Swiss franc sky high. However, the Swiss National Bank, thanks to an agreement with the European Union, decided to impose a floor for their currency, and in order to regulate the price of the franc began to increase their foreign currency reserves to offset the inflow of Swiss currency. The overabundance of the Euro in comparison with the franc began to wane, and Europe’s economic situation began to stabilize as a result.

This resulted in a decrease in the inflow of francs, which threatened to devalue the Swiss currency. In order to offset this, the Swiss National Bank began to stop purchasing foreign currency. This resulted in the sudden spike in the value of the Swiss franc, as the inertia and backlog of the still waning inflow petered out.

The impact of this spike in the Swiss franc was seen in the Foreign Exchange Market. Virtual currency exchange, a medium of practice that uses virtual currency, began to emulate physical currency exchange. The spike lead to an increase in purchasing of the Swiss franc which lead to a surplus being introduced into the market. This surplus has had a leveling effect, driving the price the Swiss franc back to normal levels. This anomaly is now nothing more than an interesting chapter in the history of economics, but applying these scenarios in virtual trading can result in potential economists and currency traders learning a lot about how tax havens and standardized currency can affect the world of the foreign currency exchange market.