The Swiss franc failed to live up to its reputation as a safe haven during the collapse of Credit Suisse as investors sought refuge elsewhere, giving gold bullion in Swiss vaults a bigger boost than the country’s currencies, according to analysts cited by Reuters, News.ro said.

Fund managers shed the Swiss franc at the fastest pace in two years last week ahead of the dramatic takeover of UBS Credit Suisse.

The Swiss franc, often used as a safe haven during times of market stress or volatility, lost 0.9% against the dollar for the week after Switzerland’s finance department said on March 13 that regulators were closely monitoring Credit Suisse’s situation.

Meanwhile, the Japanese yen, also seen as a safe haven in times of turbulence, gained 2.6% against the dollar.

Since problems arose at Silicon Valley Bank in the US on March 9, the yen has gained more than 5.5% against the dollar.

Gold, another traditional safe haven, rose more than 5% in the week after March 13 to above $2,000 an ounce, the highest level in more than a year, while government bonds saw their biggest inflows in decades.

“It is definitely related to the development of the banking sector,” said Kirstin Kundby-Nielsen, a currency market analyst at Danske Bank, explaining why the franc has not strengthened.

Speculators added more than $800 million to their short positions in the Swiss franc in the week to March 21, the biggest weekly gain since early March 2021, according to data from the Commodity Futures Trading Commission.

On Sunday, the Swiss National Bank (SNB) arranged a $3 billion deal for UBS to buy rival Credit Suisse, backed by a large guarantee of up to $260 billion, a third of the country’s gross domestic product, in the form of state support. and central banks.

“If it wasn’t Credit Suisse but any other troubled European bank, you would see the Swiss franc rise sharply because it would be a safe haven for European risks,” said Francesco Pezzole, currency strategist at ING.

A 2016 study by the BNE found that in previous crises, money flows to Switzerland and the franc were driven by weakness elsewhere.

Futures data shows that speculators have been betting on a rise in the franc since the dot-com bubble burst in early 2000, after the September 11 attacks in 2001 and again in 2008 and 2011-2012 during the eurozone debt crisis. , and again during Covid. crisis.

During the collapse of Lehman Brothers in 2008, net inflows were driven by a “significant rebound” in the domestic market for Swiss banks, while during the eurozone banking crisis in mid-2011, the BNE found that abandonment of the euro and investment in francs was driven by foreign banks moving assets from their Eurozone branches to their Swiss branches.

“The current structure does not support any of these things. US banking stress has been limited to regional banks, while eurozone banks have been relatively unscathed so far,” said Michael Cahill, senior currency strategist at Goldman Sachs.

“The franc is not an all-weather safe haven, and so far we haven’t experienced the pressures in the market that would normally drive the franc higher,” he said.

Switzerland’s long history of political neutrality, but active integration into the global economy, also helps the country provide a haven in times of intense geopolitical tension.

This trend was seen last February, when the franc gained 5% against the euro in the two weeks following Russia’s invasion of Ukraine.

The Swiss franc is still a safe haven

It’s one thing that the franc lost some investor favor during the crisis centered in Switzerland, but it’s quite another that its days as a safe-haven currency are numbered.

Currency strategists at Barclays say that for the Swiss franc to lose its safe-haven status, the country’s balance sheet will need “fundamental changes” and the share of Swiss-issued assets in foreign liabilities would have to decline due to “large outflows and sustained” .

“This will lead to higher domestic interest rates, thereby raising the yield paid on Switzerland’s external liabilities and further impacting the country’s yield differential,” Barclays strategists led by Lefteris Farmakis said.

In such a scenario, BNE would likely try to ease the transition by stemming capital outflows, Farmakis said.

Barclays said the likelihood of a “sudden stop” episode was extremely low despite the current banking turmoil, but whether confidence in the financial system had been eroded to the extent of a “slow erosion” episode was more difficult to answer.

Fortunately, says Barclays, “this scenario has limited implications for the franc for the foreseeable future.”