USD/CHF: The case for the Swiss franc as a viable dollar alternative

The Swiss franc has been one of the best-performing currencies in the past few years. The USD/CHF pair has dropped by more than 15% from the highest level in 2016 while the EUR/CHF has tumbled by over 43% from its 2007 high. 

USD/CHF, EUR/CHF charts

US dollar hegemony risks

One of the biggest challenges in the world today is the US dollar hegemony and its role in the world economy. These concerns have risen substantially in the past few months as the dollar’s strength has caused havoc in the emerging market.

They were also exacerbated by the US of sanctions by American authorities. Most importantly, these authorities sanctioned Russia’s central bank after the invasion of Ukraine.

Therefore, as I wrote here, several countries like China and Saudi Arabia have started cutting their exposure to US debt. Also, the BRICS summit in South Africa is expected to focus on an alternative currency.

I believe that a BRICS currency will not happen because of the differences between the member states, especially India and China. Also, the mechanics of forming a new currency is far more complicated than most people think.

Therefore, the US dollar will maintain its strength in years to come. But it faces substantial risks, especially because of the soaring US debt, which will get to $50 trillion in the next few years.

Case for the Swiss franc

As such, I believe that the Swiss franc is a better alternative to the US dollar for three main reasons. First, Switzerland is one of the most developed countries, with the 7th biggest GDP per capita ratio. This strength means that the country’s stability will continue for a long time.

Second, Switzerland has minimal public debt. The total public debt stands at over $256 billion. It has a debt-to-GDP ratio of less than 45%. The US has a debt to GDP of over 122% and is expected to continue rising.

The Swiss debt is substantially smaller than the Swiss National Bank (SNB) $1 trillion pile of investments. It owns stakes in companies like Apple, Amazon, Starbucks. This means that the country has zero chances of defaulting.

Third, and most importantly, Switzerland is known for its neutrality in major issues. It is not a member of the European Union even though it benefits from the bloc. Also, it is not a member of NATO, meaning it has few enemies abroad.

Switzerland has also used its sanctions powers sparingly. While it has sanctioned Russia for its invasion of Ukraine, its sanctions are less severe than other cuntries. Switzerland has also maintained friendly relations with countries like Iran and China. 

Therefore, Switzerland has features that few countries have. It is a stable democracy with few foes around the world, which makes the Swiss franc the safest currency in the world. The franc is safer than other currencies like the Japanese yen, Norwegian krone, and Swedish krona. 

For example, Japan has allied itself closely with the US and has a mountain of debt. Swedish krona is at risk as the country seeks to join NATO and as its economy slows. Norway is also not as neutral as Swizerland in geopolitical issues.