Credit Suisse failed to live up to its reputation as a reliable safe haven during the recent crash, as investors were forced to turn to other havens, which increased the cost of gold in Swiss vaults but caused a collapse in the franc.
Investment managers last week dumped the Swiss franc at the fastest pace in two years ahead of UBS’s takeover of Credit Suisse.
The Swiss franc, which is sought out as a haven during market stress or volatility, fell 0.9% against the dollar over the week after the Swiss regulator said on 13 March that it was closely monitoring the situation surrounding Credit Suisse.
Ironically, the Japanese yen, which is also considered a haven during turmoil, rose against the dollar by 2.6%.
Gold, another traditional safe haven, rose more than 5% over the week after 13 March and surpassed $2,000 per ounce, its highest level in a year, while government bonds showed one of the largest inflows in decades.
According to currency analyst Danske Bank, the collapse of the franc was due to the fact that the risk would eventually be concentrated in the Swiss economy and financial sector. According to the Commodity Futures Trading Commission, speculators added over $800m to their bearish positions in Swiss francs in the week to 21 March.
If another European bank had been in trouble, rather than Credit Suisse, the Swiss franc would have risen sharply because it would have become a safe haven, according to ING.
Futures data shows that speculators have made bullish bets on the franc after the dot-com bubble burst in early 2000, and also during the crises of 2008 and 2011-2012, during the eurozone debt crisis, and once again during the COVID-19 crisis.
Swiss franc, according to analysts, is not a universal safe haven, and there has not been such market pressure that would typically lead to an increase in the franc value. It is one thing when the franc lost some popularity among investors during the crisis with CS, and it is quite another to assume that its days as a refuge are numbered. The latter would require “fundamental changes” in the country’s balance sheet for the share of assets issued in Switzerland to be reduced through a large and sustained outflow.