Or the Swiss franc, as it’s more commonly known.
According to Mansoor Mohi-uddin, managing director of foreign exchange strategy at UBS, one of the mega currency trends of the next decade will be the increasing use of the Swiss franc as a proxy for the old German Mark.
Now, that’s probably not what the Swiss National Bank, which has been intervening unilaterally to counter the strength of the CHF, wants to hear.
But Mohi-uddin is convinced the next 10 years will see the CHF strengthen, and strengthen — and then strengthen some more.
Here’s why:
Europe’s crisis has exposed the Eurozone’s flaws. Germans want to see the Deutschemark return. Foreign investors would like a hard currency alternative to the dollar. But a euro break-up is still unlikely for now.
The franc already is a good proxy for Germany’s economy. Twenty per cent of Swiss exports go to Switzerland’s northern neighbor. As Germany’s own exporters benefit from the weakness of the euro globally over the next few years, German demand for Swiss exports will rise. This will boost Switzerland’s trade balance and the value of the franc.
In addition, the massive increase in the Swiss National Bank’s reserves over the past year has resulted in the central bank holding foreign assets far exceeding most other European institutions. This will support confidence in the franc – just as the Bundesbank’s reserves in the past bolstered the Deutschemark – while also increasing the potential influence of the SNB in international financial markets.
Furthermore, Switzerland’s economy has entered the new decade as one of Europe’s strongest economies. Its small size means that it cannot attain the same leadership position that Germany’s economy has. But the Swiss franc will still benefit from Swiss outperformance in 2010-2020.
Related links:
Swiss intervention in context – FT Alphaville
Chart du jour – EUR/CHF – FT Alphaville
Bonfire of the currency correlations – FT Alphaville
Swiss franc intervention cost a billion a day in April - FT Alphaville