The Swiss may best be known for their neutrality, fine watches, and anonymous banking accounts, but the Swiss economy offers more than meets the eye.
Surrounded by many different nations, the Swiss have all but rejected the European Union, deciding that economic and currency sovereignty is more important than relative ease of commerce. Despite their decision, the Swiss economy is doing just fine, even as the EU struggles with some disagreement between member nations and debt crises.
Swiss Economic Stats
Switzerland produced just under half a trillion dollars of goods and services in 2010, making it one of the smallest nations by output in the G8. However, even though the Swiss economy is small in nominal terms, adjusted for population, Switzerland is one of the wealthiest and productive nations. Per capita GDP rose to $66,629 in 2009.
Imports include machinery and transport goods, pharmaceuticals and medical technologies, as well as manufactured consumption products. The Swiss import goods from Germany, the US, Italy, France, Russia, and the United Kingdom.
Exports are mostly indicative of their precision manufacturing; chemicals, watches and timepieces, foods, jewelry, machinery, and scientific instruments top out the list of exports. Trade partners who purchase Swiss goods and services include Germany, the US, France, Italy, and Austria.
The export business is the lifeblood of the Swiss economy, with exports being equal to 50% of GDP in 2010. Of course, as with any smaller nation landlocked by several surrounding countries, most goods find themselves to be consumed outside the nation’s borders.
Monetary Policy
Only three members make up the Governing Board of the Swiss National Bank, which sets monetary policy for the Swiss Franc.
The Swiss conduct monetary policy measures differently than other countries. Whereas other banks set directly the rate of interest on borrowing money (by changing the internal cash rate, or bank rate) the Swiss operate in the open markets entirely.
The SNB targets a rate for the CHF LIBOR. The LIBOR is the London Interbank Offered Rate, which is the rate which private banks borrow money from other banks. The LIBOR is quoted for the Swiss Franc as well, which stands as the SNB’s benchmark rate.
The SNB aims for an inflation rate of 2% per year. In keeping with this goal, the Swiss National Bank uses repo policies to increase or decrease the amount of Francs available. For example, if the inflation rate is running too high, the SNB can sell Swiss government debt securities to increase the amount of debt on the marketplace, but soak up Francs circulating in the economy.
If inflation is too low, the Swiss can buy debt securities on the open markets to increase the number of Francs circulating through the economy.
Economic Indicators
Balance of Trade
Employment
CPI
Swiss Franc (CHF) Movers and Shakers
Gold – The Swiss Franc shares a correlation with gold prices because its currency is, in some way, backed by gold. The Swiss National Bank maintains a healthy stockpile of gold, and gold’s value as an anonymous, non-inflationary “currency” gives lift to the Franc.
Fear – When investors start fearing the world economy, Switzerland starts looking like a great place to store wealth. If the fears are Europe-related, the CHF is a great way for investors to get exposure to Europe without the European Union.
Mergers and Acquisitions – Swiss banks are big; you might even say the banks are colossal. A strong financial sector and investment banking operating allows the Swiss an edge in international merger and acquisition business. When M&A activity is on the up and up, large amounts of international currency are moved through Switzerland, and the Franc, resulting in active trading of the CHF and pairs related to it.
