Franc at lowest euro level since February

The mighty Swiss franc dipped on Monday to its lowest value against the euro since February as the European common currency rose above 1.083 francs in foreign exchange trading late in the day.

Franc at lowest euro level since February
Photo: AFP

The downward move of the franc came following the conclusion of the latest accord between Greece and its creditors, further distancing the prospect of a “Grexit” from the eurozone.

The risk of Greece being forced to abandon the euro over its financial difficulties earlier strengthened the Swiss currency, seen as a safe haven for investors in times of uncertainty.

The franc briefly rose above parity with the euro in late January after the Swiss National bank announced it was abandoning a policy it followed for more than three years of supporting a 1.20-franc floor for the euro.

The central bank has argued that the franc remains significantly over-valued, something that poses a risk to the Swiss economy because of its impact on Swiss exports.

It has imposed negative interest rates on large sight deposits of Swiss francs and intervened in currency markets to prevent the euro from edging toward parity a second time.

Still, in the face of the Greek crisis the franc remained above 0.95 euros from the end of March until late July.

But the easing of that crisis combined with the unexpected decline in the Swiss consumer price index for July, released last week (down 1.3 percent from a year earlier), was credited by traders with pushing down the franc.

The Swiss currency also fell against the US dollar, which rose above 0.98 francs late on Monday.

In addition to its impact on exporters, the high franc has hit the Swiss tourism sector particularly hard as many vacationers have decided to give Switzerland a miss because of its high hotel and restaurant prices.

The number of hotel nights in the first six months of the year dropped by 0.6 percent from the same period a year earlier to 17 million, according to statistics released last week.

But the decline of hotel nights by foreigners dropped by almost two percent to 7.7 million. 

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Why is the demand for 1,000-franc banknotes growing in Switzerland?

Large-denomination banknotes, like the 1,000-franc note, are rarely used for everyday transactions in Switzerland. So why are they becoming more popular?

Why is the demand for 1,000-franc banknotes growing in Switzerland?
The kind of banknotes the Swiss like to stash away. Photo by AFP

The demand for 1,000-franc notes has risen in the past months, data from the Swiss National Bank (SNB) indicates.

CHF1,000 converts to approximately €925.75, £824,63 or $US1126.98. 

Whether withdrawing the money from an ATM machine or directly from a bank, customers request large-bill denominations more often than before.

“We do know there is more cash being currently withdrawn in large notes, but it changes hands less often” Sarah Lein, a monetary policy expert from the University of Basel told SRF public broadcaster.

This means the money is not being spent but stashed away.

“We can conclude that some large notes end up in a safe”, she added.

READ MORE: Switzerland’s economy forecast to recover 'from summer onwards' 

The reason, she said, is that many banks charge their customers negative interests on large deposits.

“Therefore, it could be cheaper to simply withdraw the cash in large notes and keep it in a safe, especially since inflation has been extremely low for a long time”, Lein added.

This is not unusual — in times of crisis, more cash is often in demand.

But could this cause the shortage of 1,000-franc bills?

That is not likely to happen, Lein pointed out.

“Both the central and commercial banks have enough cash stored in their vaults to meet such demand. So there is always enough money available”, she said.

There is about 48.6 billion francs floating around in the form of 1,000-franc notes, constituting 59 percent of all Swiss notes in circulation. 

It is the world’s second-largest denomination after Brunei's B$10,000 note.

READ MORE: What do people in Switzerland spend their money on?