The Financial Report
By Janet Tavakoli
Swiss National Bank Cuts to Zero: Decade After Franc Shock
- Posted January 16, 2015
- By Janet Tavakoli
Updated 2025 by Janet Tavakoli, president of Tavakoli Structured Finance
Swiss Franc Hits Zero: Historic Monetary Easing Continues
Ten years after the Swiss National Bank’s (SNB) shocking decision to abandon the franc-euro peg in January 2015, the central bank continues to demonstrate its pragmatic, contrarian approach to monetary policy. In June 2025, the SNB lowered its policy rate to 0%, marking the sixth consecutive rate cut since early 2024. This historic move to zero interest rates reflects the bank’s ongoing commitment to price stability amid persistent deflationary pressures.
Current Monetary Environment: Fighting Deflation
Swiss inflation fell from 0.7% year-on-year in November 2024 to 0.3% in February 2025, primarily because of dropping electricity prices. The SNB now faces the opposite challenge from 2015 – not an overvalued currency threatening exports, but deflationary forces that require aggressive monetary accommodation.
The SNB predicts that inflation will touch around 0.4% this year, before averaging approximately 0.8% both next year and in 2027. These projections underscore the persistence of low inflationary pressure that has characterized the Swiss economy in recent years.
Safe Haven Status Remains: Geopolitical Tailwinds
The Swiss franc continues to benefit from its safe-haven status amid global uncertainties. Tensions in Ukraine and the Middle East reinforce the Swiss franc’s safe-haven status, while trade policy uncertainties from the United States add additional support to the currency.
Over the past month, the Swiss Franc has strengthened 1.73%, and is up by 10.96% over the last 12 months. This appreciation has occurred despite the SNB’s aggressive easing cycle, demonstrating the enduring appeal of Swiss assets during turbulent times.
Gold Reserves: Strategic Stability Asset
Switzerland maintains substantial gold reserves that continue to play a strategic role in monetary policy. Gold Reserves in Switzerland remained unchanged at 1040 Tonnes in the first quarter of 2025, representing approximately 8% of the SNB’s total assets.
Switzerland remains a global outlier when it comes to per capita gold, with 1,039.9 tonnes of gold reserves shared among just 8.8 million people. This results in an impressive 118.2 grams per person, by far the highest gold-per-head ratio in the world.
The 2014 gold referendum, which the original article referenced, was decisively defeated. However, the SNB’s substantial gold holdings continue to provide currency stability and serve as a hedge against monetary system disruptions.
Exchange Rate Dynamics: Euro Weakness Persists
The franc-euro relationship remains a central concern for Swiss policymakers. Several expert projections indicate that the EUR/CHF exchange rate could reach 0.93 by the end of June 2025, suggesting continued euro weakness relative to the franc.
In 2024, the Swiss franc to euro exchange rate showed significant volatility, with the best exchange rate of 1.0783 EUR on December 9, 2024, and the worst rate of 1.0056 EUR on May 24, 2024. This volatility reflects ongoing structural challenges in the eurozone economy.
Foreign Currency Reserves: Diversified Portfolio
Foreign Exchange Reserves in Switzerland increased to 703,568 CHF Million in May from 702,954 CHF Million in April of 2025. The SNB continues to maintain substantial foreign currency reserves, though the composition has evolved since 2014.
Unlike the 2014 composition mentioned in the original article (48% euros, 27% dollars), the SNB has likely adjusted its portfolio to reflect changing global monetary conditions and the relative weakness of the euro versus other major currencies.
Economic Outlook: Moderate Growth Expected
Swiss GDP growth was strong in the first quarter of 2025. However, this development was largely due to the fact that, as in other countries, exports to the US were brought forward. The SNB expects more moderate growth going forward.
The SNB expects GDP growth of 1% to 1.5% for 2025 as a whole. The SNB currently also anticipates GDP growth of 1% to 1.5% for 2026. This measured outlook reflects both domestic economic constraints and external uncertainties.
Lessons from 2015: Central Bank Independence
The original article praised the SNB for “not completely losing their minds” compared to other central banks. Ten years later, this assessment appears prescient. While other central banks engaged in unprecedented quantitative easing and maintained ultra-low rates for extended periods, the SNB has shown flexibility in both directions.
The 2015 franc shock, which caused massive losses for forex traders and some firms to fail, demonstrated the risks of betting against central bank policy changes. The SNB’s current approach shows similar unpredictability – moving rates to zero when economic conditions warrant, regardless of market expectations.
Looking Forward: Policy Space and Flexibility
The SNB’s current position at zero interest rates leaves limited conventional policy space. However, the bank has demonstrated willingness to use unconventional tools, including:
- Negative interest rates (previously implemented from 2015-2024)
- Foreign exchange interventions
- Forward guidance on policy direction
The introduction of tariffs on US imports could slow global GDP growth with potentially adverse consequences for a small open economy like Switzerland. This external risk factor suggests the SNB may need to maintain an accommodative stance longer than initially anticipated.
Conclusion: Swiss Pragmatism Endures
The Swiss National Bank’s approach over the past decade validates the original article’s assessment of Swiss monetary pragmatism. From shocking markets with the 2015 peg removal to gradually cutting rates to zero in 2025, the SNB continues to prioritize Swiss economic interests over market expectations or international coordination.
The bank’s substantial gold reserves, flexible exchange rate policy, and willingness to use unconventional tools position Switzerland well for future economic challenges. As global uncertainties persist, the Swiss franc’s safe-haven status and the SNB’s independent approach remain valuable assets in an increasingly volatile monetary landscape.
References
European Central Bank. “Monetary Policy Decisions.” Accessed July 2025.
Fink, Fabian, Lukas Frei, Thomas Maag, and Tanja Zehnder. “The Impact of SNB Monetary Policy on the Swiss Franc and Longer-Term Interest Rates.” International Journal of Central Banking 20, no. 1 (February 2024): 53-92.
Swiss National Bank. “Monetary Policy Assessment of 19 June 2025.” SNB Press Release, June 19, 2025.
Swiss National Bank. “The SNB’s Monetary Policy Strategy.” Accessed July 2025.
World Gold Council. “Central Banks Gold Reserves by Country.” Gold Hub Data, May 2025.
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