With much of the financial community walking on eggshells as it awaits the June 23 vote on whether the United Kingdom splits from the European Union (EU), determining how it affects the future of the Swiss franc becomes a fascinating parlor game.
Many individuals had previously gone on record as saying that the franc will actually serve as one of the few islands of stability with regard to the so-called Brexit. That was when the idea of a possible breakup was considered unlikely. However, the fact that the vote has since become a tossup has added a layer of uneasiness to such talk.
Companies like Geneva-based Manixer are hoping for the best alternative, which would be to maintain the status quo. That’s because uncertainty in any aspect of the financial world is a recipe for turmoil, which tends to have a cascading effect on all components of the economy.
Manixer’s CEO Marwan Naja points out that no country has ever taken the drastic step of actually leaving the EU. Therefore, trying to figure out what path is taken when the ultimate decision is made is pure guesswork.
Back in 1992, Switzerland had the opportunity to join the EU. Voters had little interest then and have continued to express apathy toward the idea, though it has a trade agreement with the EU and there are no issues with regard to international travel.
When it comes to the Swiss franc, the term “safe haven” has usually been connected to it. However, that reputation and the potential financial dangers ahead have caused it to jump in comparison to the euro.
Given the importance of exports to the Swiss economy, that can have a damaging effect on the country’s financial health. That’s because companies have no choice but to tighten up spending and reduce prices in order to compete.
One indication of the concern is that Switzerland’s 30-year government bond joined all of the country’s other bonds in negative territory. What makes that significant is that it’s the first time the 30-year version dipped below that threshold.
Sadly, one shocking event may play a role in the ultimate fate of Brexit. On June 16, British politician Joe Cox was murdered with her support of staying in the EU seen by some as a possible motive. Whether or not that can help tip the scales in favor of voting down Brexit is something that no one can gauge until the last ballot is counted.
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