The Swiss franc is brimming with strength, but how serious is the problem?

Swiss export industry: An employee inspects surgical bone saw blades manufactured by Gomina in Valais, Switzerland. Keystone / Gaetan Bally

The strong Swiss franc is causing growing concern in economic circles. Is it time for the Swiss National Bank to step in? And just how serious is the problem? Swissinfo takes a closer look.

Is the strength of the Swiss franc historic?

In nominal terms, the franc is currently trading near historic highs. It has never been stronger against the euro, as this chart illustrates:

Against the dollar, a similar pattern emerges. One Swiss franc currently trades at $1.27, just one cent below its all-time high in August 2011.

Back then, the financial crisis was raging in the US, while Europe was grappling with high debt levels. Investors lost confidence in the euro and turned to the Swiss franc. Shortly afterwards, in September 2011, the Swiss National Bank (SNB) introduced the minimum exchange rate against the euro, effectively pegging the franc to the single European currency.

Times are uncertain again, albeit for different reasons, and investors are once again looking for safety.

Is the franc really that strong?

To gauge the strength of a currency, it is not enough to look at the nominal exchange rate alone. “You should not focus on the nominal rate but on the real exchange rate adjusted for inflation,” says Aymo Brunetti, professor of economics at the University of Bern. “These are the ones relevant for an economy’s competitiveness.”

Based on this, Brunetti does not consider the franc extremely strong. “In real terms, the franc has been largely stable since 2015, with a modest uptick recently.” What Brunetti is referring to is illustrated in this chart:

Jean-Philippe Kohl, head of economic policy at Swissmem, the association for the Swiss technology industry, agrees: “Measured by purchasing power parity, the franc is not overvalued against all currencies.” We talk about purchasing power parity when a basket of goods costs roughly the same in two currency areas which is currently the case between Switzerland and the US.

Which role does inflation play?

The reason behind the stable purchasing power parity is inflation which is currently low in Switzerland but high in the US. The price hike in the US effectively offsets the dollar’s weakness.

Kohl, however, is more critical of the eurozone. “Against the euro, the franc is overvalued by 4% to 5%. A level that is significant and too high for many businesses to absorb while remaining competitive.” This puts exporting firms in a difficult spot: a strong franc forces them to raise prices abroad to stay profitable, but doing so could drive customers away.

Is the economy in trouble?

Different sectors feel the impact to varying degrees. For Swiss tourism, the strong franc can pose a real challenge as Switzerland becomes even more expensive for tourists who pay in euro or US dollars.

For the industry, however, the strong franc is a constant burden which continuously challenges the companies. “There has hardly ever been a fairly valued franc in the last 15 years,” says Kohl, who is also Swissmem’s vice director.

Nick Hayek, CEO of Switzerland’s largest watchmaker, Swatch Group, sees things differently. In an interview with WatsonExternal link, he says: “CHF308 million ($397 million) of our sales decline is purely due to the currency effect which we owe to the extremely overvalued franc.”

Dissatisfied: Swatch boss Nick Hayek. Keystone / Peter Klaunzer

What’s the situation for SMEs?

Hayek also argues that many Swiss SMEs were struggling due to the franc’s extreme overvaluation. This view is in line with an internal survey conducted by Switzerland Global Enterprise,the Swiss export agency, of 700 export-oriented Swiss SMEs. On their “concern barometer” currency risks top the list, even ahead of US trade policy.

Simone Wyss-Fedele, CEO of Switzerland Global Enterprise has an explanation for this concern. “Real exchange rates don’t really matter to SMEs when preparing their financial statements; it’s the nominal rate that affects profits immediately,” she notes. Especially when sales are generated in foreign currencies, even minor currency swings — just a few cents here or there — can have a significant impact on a company’s earnings at the time of the annual accounts.

One way to protect your earnings is to produce for foreign markets within those markets, in other words to move production abroad. Hayek’s Swatch Group, which produces directly in Switzerland for its overseas consumers, does not have this option.

Does the strong franc force Swiss businesses to relocate abroad? Wyss-Fedele puts this concern into perspective. “Even though such a move shifts part of the value creation abroad, the company remains profitable and continues to pay taxes in Switzerland,” she says.

What role does the Swiss National Bank play?

The SNB’s top priority is not currency stability but stable, predictable prices at home. To achieve this, it controls inflation. “Inflation [in Switzerland] is very low which shows the bank is doing its job well,” says Kohl adding that Swissmem would also welcome a weaker franc.

For watch magnet Hayek, however, this is not sufficient. “I expect the National Bank to show strength and acknowledge that such an extreme overvaluation of the franc harms Switzerland,” he says in the Watson interview.

In the past, the National Bank would buy large amounts of foreign currency to weaken the franc whenever it came under upward pressure. But most recently, it has held back from such interventions in the currency market.

Is the National Bank able to act?

Swatch CEO Hayek attributes the SNB’s restraint to pressure from the US which may have limited the Bank’s freedom to act. He refers to a related agreement between the SNB and the US from September 2025.

Under this agreement, Switzerland commits itself not to gain “unfair competitive advantage” through “manipulating exchange rates”. Previously, the US had repeatedly accused Switzerland of currency manipulation and put it on a related blacklist.

Indeed, if the SNB were to intervene in the currency market in the future to weaken the franc, it would have to justify its actions to the US.

The agreement makes no mention of negative interest rates which could also be used to weaken the franc. Looking at current figures, economics professor Brunetti says, “I understand why the SNB is not introducing negative interest rates in light of current inflation and exchange rate trends.”

At the same time, Kohl calls for action. “Given the National Bank’s limited room to manoeuvre, policymakers need to improve the framework conditions.” The export industry is hoping for new free trade agreements, less bureaucracy and lower costs.

Edited by Samuel Jaberg/Adapted from German by Billi Bierling/ds