The franc no longer has any allies like the German mark once did. The Swiss currency is the last real hard currency in the world. This is sometimes comfortable, sometimes unpleasant, but a good sign for our country.
Oct 23, 2025, 05:46Oct 23, 2025, 05:46
Daniel Zulauf / ch media
“As a traditional hard currency, the Swiss franc now stands alone,” says Alexander Koch, who also monitors the foreign exchange markets for Raiffeisen. By 2027, the value of a euro could have fallen to less than 90 centimes, he believes. His forecast is more than just speculation.
Nickel-brass versus copper-nickel: At the outer edge, the euro is harder than the franc – but only when it comes to the alloy.Image: KEYSTONE
“The question is not whether, but when exactly the euro-franc exchange rate will fall below the 90 centime mark,” says investment director Thomas Stucki from the St.Galler Kantonalbank.
In their predictions, the economists based their predictions on a well-known and empirically proven phenomenon: If the prices of identical goods differ between two countries, even though the goods can be traded across borders, then the exchange rate will compensate.
Inflation determines exchange rates
The concept is called “purchasing power parity” in economists’ language and it means that in a world with flexible exchange rates, the inflation differences between countries determine the exchange rate. In Switzerland the inflation rate was 0.2 percent in September, while it was 2.2 percent in the euro area. Assuming that the difference of two percentage points in Switzerland’s favor remains as of now, according to theory, one euro should cost less than 90 centimes next autumn.
Stucki and Koch believe it could take a little longer. Thomas Stucki points to the dollar, which has lost a lot of trust among international investors since Donald Trump entered the White House. The euro is also benefiting from this, having experienced a small surge in the summer of the current year. “Without this dollar effect, I would have expected the euro to fall below the 90 centime mark this year,” says Stucki. Now it may take another two years.
Alexander Koch has further arguments: The inflation difference between the euro and the franc is currently well above the historical average of around 1.5 percentage points. “I assume that we will very soon approach this historical average again, with inflation rates rising slightly in Switzerland and rates tending to fall or remain the same in the euro area.”
A continuous appreciation of the franc, which goes hand in hand with the purchasing power parity, is a neutral process for industry and consumers; there are neither advantages nor disadvantages from it. The development is certainly striking, especially since the euro cost more than 1.6 francs when it was introduced over 25 years ago.
But is the inflation difference set in stone in Switzerland’s favor? Maybe, but only if the strong franc exchange rate helps to make imported goods cheaper from now on. What suggests that it stays that way? The Franconian is celebrating its 175th birthday this year.
Strength is cause for celebration
The well-known Swiss monetary theorist Ernst Baltensperger traced the long history of the franc in a book a few years ago and stated there:
“The strong awareness in Switzerland of the fundamental social importance of the monetary order, its stability and reliability, has contributed greatly (…) to the country’s economic and political success since the establishment of the federal state.”
If there should be a reason to celebrate rather than fear the constant appreciation of the franc, then Baltensperger has formulated it precisely. (aargauerzeitung.ch)