The Swiss Franc: a Safe Haven for Corporate Finance
When running a business operating internationally, incurring costs and generating revenues in different currencies plays an enormous role in the overall profitability of a company. Capital reserves meant for paying shareholder dividends, recruiting top-notch executives, financing mergers and acquisitions also need protection; banking them in the right currency can have a large influence on subsequent purchasing power given that currencies often fluctuate greatly and unpredictably against each other, particularly in times of economic or political crisis. The graphs below illustrate the volatility of major world currencies against each other over a five year period between 2015–2019.
(Source: xe.com)
Being able to flexibly react to changing economic conditions and preserve wealth is a big advantage in a rapidly changing world. Recent events such as the tariff wars between the USA and China, impending Brexit, and political tensions in the Middle East, South America and North Korea have resulted in major swings between currencies. As the finance function of a company is typically executed at it’s corporate headquarters, and it’s subsequent balance sheet managed in the local currency, establishing a corporate headquarters in Switzerland can be a fiscally wise move. Currently over 230 internationally active corporations have recognised this fact and have established their primary headquarters in Switzerland due to its political and fiscal stability.
The Swiss Franc has shown throughout history to be a stable safe haven for accumulating wealth which not only maintains, but consistently increases its value against other currencies over time. A study by economists at the central bank of Germany (Deutsche Bundesbank), covering a 24-year period found that the Swiss franc generally appreciates during times of financial stress and sinking stock market indices. In addition to the country’s stable government and financial system, it is no surprise that the Swiss franc is considered a safe haven by global investors during turbulent financial times; currently Swiss banks manage 27.5% of all global assets managed cross-border, estimated to be worth the equivalent of 6.5 trillion US dollars.
Historical exchange rate of the Swiss Franc vs. major world currencies over the long term show not only stability, but steady and continuous growth in value. The following graphs show the value of the Swiss Franc against major currencies over a 30 year period from 1989 to 2019:
It may be argued that a continuously rising Swiss Franc means products and services priced in francs become correspondingly more expensive and therefore uncompetitive in markets outside of Switzerland. This is an unavoidable aspect of a strong currency, however product pricing and overall profit and loss is balanced out by outsourcing capital-intensive activities outside of Switzerland which is indeed something that has been occurring steadily over the past 30 years: manufacturing, testing, IT, software and hardware development, assembly and logistics have been steadily moving out of Switzerland to the EU, eastern Europe, India and Asia while HQ functions such as management, marketing, finance, and highly-skilled R&D resources are maintained in Switzerland. This lowers operational costs enormously while maintaining the corporate tax benefits of a Swiss-based company.
In conclusion, basing corporate finances in Swiss Francs gives firms the security as well as flexibility to maintain financial stability even through periods of turbulent economic and political events.
INITIUM: a specialist bank for emerging tech firms headquartered in Switzerland
A new breed of bank, INITIUM Group, recognises the enormous opportunities of the “New Digital Economy” which encompasses firms leveraging fintech, AI, e-money, gaming and blockchain technologies. With offices being set up in Switzerland as well as Liechtenstein, the UK, Tel Aviv and Singapore, INITIUM is intimately familiar with the advantages of establishing corporate headquarters for these budding firms in Switzerland, while conducting their business with cross-border partners and customers outside of Switzerland.
Unlike traditional banks who often shun firms that have new, unproven business models, INITIUM focuses on providing the services that budding as well as established technology firms need to run their business; corporate accounts, payment clearing, card issuing and acquiring and liquidity services.
With seasoned banking CEO Daniel Spier at its helm, Switzerland-based INITIUM is building a bank from the ground up with the innovative technology and automation required to quickly to meet the needs of pioneering firms in emerging technology sectors.
To find out more about INITIUM’s services and how they can help you establish a corporate headquarters in Switzerland, visit www.initium.group
