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Currencies
SWISS FRANC
Introduction | Overview | Structure | History | Factors affecting change in exchange rates | Daily trend of Swiss franc | Weekly trend of Swiss franc
Introduction


Franc is the name given to the currencies that act as a medium of exchange in several economies and countries of the world. The countries that have used or have been using franc as their official currency include France in the first place with Switzerland, also including Belgium, Democratic Republic of Congo, Burundi, Rwanda, Djibouti, Guinea, Madagascar, Union of Comoros and the CFA - union of 14 French-ruled African countries. All these different franc currencies are depicted by different symbols but all of them have the same subunit i.e. "centime". The word franc got its derivation from the Latin language phrase taken up from the early French coins "francorum rex" meaning "the king of the franks". 

The most dominant franc currency that is still in operation is the Swiss franc and as the name suggests, it is official currency of Switzerland. It is counted among the five strongest currencies in the world along with the US dollar, euro, Great Britain pound and Japanese yen. The ISO 4217 currency and numeric codes for the Swiss franc are CHF and 756. The currency was adopted as a medium of exchange in Switzerland in 1850 when it replaced the different currencies of the Swiss cantons.

Overview


Swiss franc as mentioned earlier, is ranked among the five most important currencies of the world. The official currency code for the Swiss franc is CHF that stands for Confoederatio Helvetica Franc, Confoederatio Helvetica being a Latin word meaning the confederation of Helvetians. Prior to 2002, the French franc use to be the strongest currency among the franc currencies of the world but after the French switchover to the euro, Swiss franc has taken over that position although it is the only version of the franc currency left in the European continent. The economy of the country does not find its place among the top five economies of the world but there’s a different case with the currency of the country mainly because of its demand and the state of art banking system making it an investor’s paradise. That is why, the principality of Liechtenstein has dollarized the Swiss franc as its national currency.

Before the introduction for the new currency for the European continent, the Swiss franc was tracking the German deutsche mark but currently it is being matched to the euro. Due to the fact that the country’s economy is stable and conservative, the currency fluctuates mostly due to the external factors rather than the domestic conditions. The Swiss franc is also popular and is demanded as reserve currency through out the globe. Switzerland is one of the major holders of gold i.e. the fourth largest in the world and that is why, the currency has an approximate of 80% correlation with gold and is featured with low interest rates.

Structure

The issue of Swiss coins marked the introduction of the currency in the year 1850 for the first time in history. The currency is subdivided into centimes as its subunit with 1 franc = 100 centimes. Actually, "franc" and "centime" are French words for the currency and its subunit but as the country has three national languages, the terms are also known as "franken" and "rappen" in German and "franco" and "centesimo" in Italian. The coins of the currency are almost the same in appearance as they use to look in the 1880s with some minor changes. The obverse side of the coin shows a majestic figure of a lady with a ring of 23 stars denoting 23 cantons. There are 8 denominations in which the Swiss franc coin is minted that are 1 centime, 5,10,20,50 centimes, 1 franc and 2,5 francs. A 2 centime coin also existed in the past but it is not produced now since 1974 and is not accepted anywhere in the country. Apart from the currency coins, some commemorative coins and gold coins generally known as "Vreneli" are also into circulation.

The Swiss bank notes came into existence in 1907. Till now, 8 series of banknotes have been printed since the inception of the currency and 6 of them have been released for the use of the public. The notes are available in 6 denominations i.e. 10, 20, 50, 100, 200 and 1000 francs. The 200-franc note has been introduced into the last series only in place of 500-franc note. The central bank in the country is the Swiss National Bank that manages the currency transactions and help in the circulation of the Swiss notes. The responsibility to mint coins for the currency is held by the Swiss mint.

History


Prior to induction of Swiss franc as the official currency, 25 Swiss cantons and half cantons, 16 cities, abbeys, totaling up to 75 separate entities had their own currencies and coins, which resulted in an absolute economic chaos in the country. There was a very high percentage of foreign currency share i.e. more than 85% in the total money circulating in the country. For the purpose to improve this situation, the federal government was given the sole authority to produce money in the country according to the new Swiss Federal Constitution in 1848. The federal assembly passed the coinage act in 1850 adopting the Swiss franc as the national currency that replaced all the other currencies in circulation and at first it was issued at par with the French franc.

In 1865, Latin monetary union was formed when the countries including France, Belgium, Italy and Switzerland agreed to fix up their respective currencies to 4.5 grams of silver or 0.290322 grams of gold but the union got dissolved in 1927 due to the problems faced by the member countries. Swiss franc still continued to keep the set standards when finally it gave it up in 1967. The currency had been strong since its introduction except for one phase during the Great Depression in 1936, when it got devalued by as high a margin as 30%. 8 series of banknotes have been issued since 1907 but two of them were not circulated for the public use. 1 among them was the 7th series that was issued as a result of precaution due to the sudden threat from the problem of counterfeiting.

Factors affecting the exchange rates between two countries


The volatility in the foreign exchange rates depends upon a numerous macro economic factors that have different degrees of importance to different economies of the world. Some special and exceptional factors affecting the rates may also exist in the case of different countries. Following are shown the common factors on which the foreign exchange rate depends

  • Flow of imports and exports between the countries
  • Flow of capital between the countries
  • Relative inflation rates
  • Fluctuation limits on exchange rate imposed by the governments of the countries
  • Merchandise trade balance
  • Rate of inflation in the country
  • Flow of funds between the countries for the payment of stock and bond purchases
  • Relative growth
  • Short term and long term interest rate differentials
  • Cost of borrowings
 
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