Which is the strongest currency in the world?

2 min. reading
Financial Education / 24 February, 2020

Diego Balsa Portfolio Manager

When we think of strong currencies, the first that usually comes to mind are the dollar and the euro. Other examples of currencies that we identify as being very important currencies are the Japanese yen, the Chinese yuan, the British pound, the Australian dollar, and the Canadian dollar.

The most important, considering that it is the international reference currency and the most used, is the US dollar, but which is the strongest?

We construe strong as the currency that has risen the most both since 1900 and since the United States left the gold standard in 1971.

Swiss Franc vs. Dollar

The answer is the Swiss franc. As an example, note that since 1971 Switzerland’s currency has strengthened 350% against the US dollar.

But how can it be that a country with only 0.1% of the world’s population has a currency that shows the greatest strength in the long term?

There are many reasons to explain this, but perhaps the most important factor is that the franc is the refuge currency par excellence, the most demanded currency in times of economic and/or political uncertainty.

By way of illustration, we can highlight the strength of the Swiss franc during the last two global crises, i.e. after the outbreak of the technology bubble in the year 2000, as well as since the beginning of the 2008 crisis. In both cases, the Swiss currency appreciated by around 70% in the 3-4 years after the crisis began.

But what is the reason investors use Switzerland as a safe haven in times of instability? There are many varied reasons but we are now going to highlight the ones we consider most important.

  • Legal, financial and political stability.
  • Inflation and rates are more stable than their counterparts.
  • It has one of the highest levels of reserves in the world (despite the country having a very low population).
  • The level of public debt is extremely low in relation to the main developed regions.
  • It is a very productive and diversified economy, with a lot of weight in high-value and/or cutting-edge sectors such as technology, pharmaceutical, luxury, biotechnology, cryptocurrencies, etc.