We started suggesting that those interested in diversifying away from the pound looked at holding Swiss francs some years ago. Anyone who did so will be pleased. It is up 11% against the euro in the last three months alone.
On most measures, the currency is beginning to look a little pricey: on a real trade-weighted basis, it is now 30% above its long term average. But that doesn’t mean it can’t rise further.
Why? It isn’t because the Swiss economy is doing particularly well, says Capital Economics. And it isn’t because the Swiss National Bank is the most disciplined in the world. It is because Switzerland is one of the few places in the world that is definitely solvent.
Public debt is only 55% of GDP and the budget is “broadly balanced”. No one can get confused about the difference between the deficit and the debt in Switzerland, for the simple reason that there isn’t a deficit.
The Swiss government might not like the rise in its currency much (no one wants a strong currency these days) but there isn’t really much it can do about it. The SNB has ruled out intervening in the markets to hold the franc down and it can’t do much about the dodgy finances of the rest of the world either.
With the IMF warning that if the eurozone doesn’t take immediate action on debt, the results will be “very costly” for all of us, and everyone finally fleeing for safe havens, Switzerland might just have to accept that its own fiscal discipline has doomed it to having the strongest currency in the West.