The historical origins of the safe haven status of the Swiss franc

An empirical analysis of international interest rates and of the behavior of the exchange rate of the Swiss franc since 1850 leads to the conclusion that World War I marks the origin of the strong currency and safe haven status of the Swiss franc. Before World War I, interest rates point to a weakness of the Swiss currency against the pound, the guilder and French franc (from 1881 to 1913) that is shared with the German mark. Thereafter, we see the pattern of the Swiss interest rate island develop and become especially pronounced during the Bretton Woods years. Deviations from metallic parities confirm these findings. For the period after World War I, we establish a strong and stable real and nominal trend appreciation against the pound and the dollar that reflects, to a sizeable extent, inflation differentials.