Money flow depends on perception of market safety. During time of typical economic expansion, it has tendency to move where there is most activity and opportunity. As long as current conditions are considered “normal” most market participants see this behavior as safe and prudent. During times of turmoil and market panic, capital has tendencies to seek safe havens, real or perceived.

Throughout modern history US Dollar has been such destination. At times of uncertainty,  sophisticated investors, as well as institutions, gravitate towards USD denominated securities, namely debt instruments issued by US Treasury. These are guaranteed by US government and deemed 100% secure. We had example of just such behavior in late 2008, during latest global financial crisis.

While the biggest, Dollar is not unique in the role “safe haven”. Another well known, though smaller, such destination is the Swiss Franc. Switzerland’s long standing policy of neutrality have have contributed to certain aura surrounding its currency. After this country doesn’t even belong to UN, while providing facilities for the world’s governing body. Non-involvement in armed conflicts over last two centuries helped to solidify Swiss perception of being safe.

From a more pragmatic, monetary stand point, the country also provides very well developed financial and banking sector. One of the most complete in the world. At the same time Swiss financial authorities also proved that they can provide steady and far sighted monetary policy. Economy of Switzerland, while fairly small, is remarkably steady and has been for decades. Even more reasons for Swiss Franc to be considered a safe haven.

Recently, though, this status has been shaken by piercing its bank secrecy laws. Switzerland agreed to cooperate in tax evasion cases against citizens of other countries. Some see it as the end to Franc’s unique status. In reality, Swiss have been cooperating in criminal cases for decades. Tax evasion has simply been reclassified as a criminal issue. Individuals will still continue to use Swiss banks for their services and expertise.

Introduction, and success, of Euro, may have undermined status of CHF much more that the tax issue, which merely gave it a proverbial black eye. Switzerland is surrounded by Euro-zone countries. Vast majority of foreign trade by the Alpine state is done with a Euro wielding partners. All of a sudden Swiss economy became very vulnerable to the vagaries of Euro. And so did the Franc.

Since former currencies of France, Germany, Italy and other countries were incorporated into the Euro, percentage of CHF foreign exchange volume shrank as compared to the pre- common currency days. Figures released by Bank of International Settlements show that Swiss Franc takes about 7% of global Forex transactions. While not dominant share, it is still way out of proportion when comparing to economic output of the country or its population.

Status of Franc as a safe haven may have been bruised and dented recently, but money flow doesn’t lie. During the panic of 2008 CHF once again became one of the instruments of choice for those seeking “safety”. Other one s were US Dollar and Japanese Yen. No matter its classification, currency of Switzerland is very viable for trading and diversification. It is bound to remain important for the foreseeable future.