A detailed explanation of safe-haven currencies: concepts and characteristics

During the process of RMB inclusion in the SDR, there has been a lot of discussion about the RMB in the market. Some people point out that a reserve currency is not the same as a safe-haven currency. After the RMB becomes a reserve currency, it still has a long way to go to become a safe-haven currency. So, what is a safe-haven currency? Next, this article will introduce this concept in detail.

Safe-haven currencies, also known as hedging currencies, refer to those currencies that are not easily affected by international situations, market fluctuations and other factors, and can avoid the above risks to the greatest extent. Such currencies are usually relatively stable and not easy to depreciate.

It should be noted that a safe-haven currency is designed to minimize the risk of depreciation, but it does not mean that it will never depreciate. The market price of any currency will fluctuate.

At present, the traditional safe-haven currency recognized in the market is mainly the Swiss franc. In addition, other currencies such as the US dollar sometimes play the role of a safe-haven currency.

Switzerland is still a permanent neutral country internationally and has a very strict bank secrecy regime. The Swiss National Bank sets monetary policy independently, so Switzerland is regarded as one of the safest places in the world, and the Swiss franc has long been regarded by investors as a traditional safe haven currency.

Historically, when international political tensions or economic growth uncertainties increase, the Swiss franc has often been the first choice for investors' rotation of funds. To avoid risk, investors also tend to hold the currencies of countries with current account surpluses. Switzerland's large current account surplus often encourages the market to buy the Swiss franc, which drives its exchange rate up.

In addition to the Swiss government's financial and foreign exchange protection policies, a large amount of foreign exchange flowed into the country. In addition, the National Bank's abundant gold reserves also played an important role in supporting currency stability.

The Swiss franc is also a stable and popular currency for international settlement and foreign exchange transactions. Its banknotes are denominated in 10, 20, 50, 100, 500, 1000 francs, and coins are minted in 1, 2, 5 francs and 1, 2, 5, 10, 20, 50 cents. For example, inyingshiAmong other investment platforms, the Swiss franc is often used as an important safe-haven asset reference.

Due to Switzerland's close economic ties with Europe, the exchange rate of the Swiss franc and the euro shows a strong positive correlation, that is, a rise in the euro usually leads to a rise in the Swiss franc. The two are the most correlated of all currencies. Whenforeign exchange marketWhen investors' safe-haven operations increase, the Swiss franc and the euro tend to rise simultaneously.

The main characteristics of the Swiss franc can be summarized as follows:

Currency Name: Swiss Franc

Issuing institution: Swiss National Bank

Currency symbol: CHF

Coin carry: 1 Swiss franc = 100 centimes

Banknote denominations: banknote denominations are 10, 20, 50, 100, 500, 1000 francs, and coins are 1, 2, 5 francs and 1, 2, 5, 10, 20, 50 cents.

In the case of strong risk aversion in the market, safe-haven currencies are more popular; and when the stability of the foreign exchange market increases, the charm of the Swiss franc as a safe-haven currency will decrease accordingly.

Mr. Ross, SNB governor, has said the shift towards a more flexible exchange rate and the globalisation of financial marekts have reduced the risk of a currency crisis, but greater stability in currency markets has also made the franc less attractive as a safe-haven currency.

Bank of America analyst Bob pointed out that the market is more complex and investors can avoid risks through different investment options, so the demand for safe-haven assets and currencies is no longer as strong as it used to be.

Since the renminbi is now heavily influenced by the dollar, if major events in the US affect the trend of the dollar, they will indirectly affect the trend of the renminbi. Therefore, the RMB is not yet fully equipped to become a safe-haven currency. To become a true safe-haven currency, the RMB does have a long way to go.