Switzerland's Central Bank Moves to Ease Exchange Rates

A few months ago, we noted that Switzerland’s sound fiscal practices had made its currency too strong for other currencies (for example, the euro and the American dollar) to trade with it, negatively impacting the country's tourism industry. Yesterday, according to the New York Times, the country's central bank moved to ease the pressure on the Swiss economy caused by the super-strong franc, which has soared to record highs as debt crises buffet the United States and Europe.

Bloomberg is reporting that the franc has surged 42 percent since the start of 2008 against a basket of currencies of Switzerland’s main trading partners, after remaining little changed over the previous decade. With the Organization for Economic Cooperation and Development now calculating that the franc is the world’s most overvalued currency, the Swiss central bank yesterday unexpectedly cut interest rates to zero to dull its allure.

The dollar, the Times reports, has plunged to record lows against the Swiss franc on fears the American economy will slow further. It was trading at 77 Swiss centimes Wednesday, down about a third from the level of a year ago. The article quotes two Boston tourists as complaining that a "mixed drink at an average bar" wound up costing approximately $25.

"The economy in Switzerland is doing very well over last few years, even during the recession," Alex Hermann, Director Americas for Switzerland Tourism, told Travel Agent. "Over the last year, the franc has become stronger towards dollar, so any measure that the US or Switzerland takes to turn this process around would be an advantage for agents or travelers."

Still, he added, Switzerland has seen an almost 4 percent increase year over year for the first half of 2011 in spite of the exchange rate. Hermann pointed to the Swiss Pass as an attractive incentive for visitors, allowing them to use smaller towns as a home base and travel around the country for free via on the country's extensive public transportation options. In addition, hotels and restaurants rarely add tax or service to the bill (meaning what you see on the menu is exactly what you pay) and the country has one of the lowerst VATs in Europe.


 

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