Examining How a Strong Swiss Franc Could Single-Handedly Topple Poland’s Economy


Boris Dzhingarov

About Boris Dzhingarov

Boris Dzhingarov is a marketer and a journalist. He graduated from he the University of National and World Economy (UNWE) in Sofia with a major in marketing. He contributes for multiple websites and portals: Tech.co, Semrush.com, Tweakyourbiz.com, Socialnomics.net. He is also is the founder of MonetaryLibrary and Dzhingarov.com.

At the start of 2015, Switzerland ended a cap on the value of the Franc relative to the Euro. Before this, it had been pegged at 1.20 Swiss Francs for one Euro. After the cap was removed, the Swiss Franc increased in value against the Euro by 30 per cent. The currency increased by 25 per cent in value against the United States dollar, also. However, this change in valuation has the greatest impact on nations with weaker economies, whose citizens borrowed heavily in Swiss Francs at the old exchange rates.

The Swiss Franc cap was originally put in place to prevent the currency’s value from being changed too much by investors who bought the currency as a safer alternative to the Euro. It removed the cap because it considered the period of exceptional overvaluation because of this foreign demand to be over.

Switzerland has one of the highest standards of living in the world and is home to many exporting companies. When the Franc is expensive, it hurts Switzerland because exports are worth 70 per cent of its GDP. Before removing the valuation cap, the Swiss National Bank had increased the supply of Francs to meet the Euro-Franc ratio. Removing the cap ended the need to print more Francs and reduced the money printing that some feared would lead to hyperinflation in Switzerland. Experts at Lear Capital precious metals have previously stated that holding gold is a good hedge against hyperinflation, which is why, until the 1990s, Switzerland had its currency partially backed by gold. Ending its monetary printing obligations also prevents Switzerland from devaluing its currency as the European Union devalues its own currency with quantitative easing.

Ending the fixed Franc to Euro ratio has helped dampen the money pouring into Switzerland as a “safe haven”, with people from around Europe and even Russia buying Swiss currency, stock and real estate. Others simply took out loans in Swiss Francs instead of their own countries. This created a bubble for the Swiss economy but it wanted to have the ability to deflate, even if the European economy collapsed.

According to the European Central Bank, more than half a million Poles took out loans in Swiss Francs worth over $40 billion. These loans are worth around eight per cent of the Polish gross domestic product and account for almost a third of all mortgages. Servicing the loans accounts for about 0.2 per cent of the overall Polish economy, a percentage that grows along with the value of the Swiss Franc. According to Reuters, eight per cent of Swiss Franc loans were nonperforming, or behind, as compared to three per cent of loans issued in Poland’s own currency.

How did such a large part of the Polish housing market get tied to the Swiss currency? Borrowers did this, in part, because of the much lower interest rates in Switzerland than in Poland; up to a third of the interest charged for loans in Polish zlotys. The impact of the, now much stronger, Swiss Franc is an increase of 20 per cent or more for mortgage payments for half a million Polish citizens because of the shift in currency valuations.

Hungary tried to solve a similar problem there, by forcing banks to convert mortgages issued in Francs to forints at far below-market exchange rates. This reduced the mortgage payments required of borrowers but hurt the banking sector by forcing it to accept heavy losses.

Poland refused to force banks to make a similar conversion, instead encouraging a gradual, voluntary conversion of the loans. This has hardly occurred. A large scale forced conversion of Franc loans to zlotys, at current ratios, would collapse Poland’s banking sector, said Poland’s central bank governor, Marek Belka, in April, 2016, according to the Financial Times. Lending would halt because of the lack of money to do this. Furthermore, Poland does not want to do anything that hurts its banks’ ability to lend money, since this is seen as necessary for fuelling economic growth.

Selling these properties won’t help, either, because Poland’s property bubble has collapsed. This was because many people were the first in their families to get a mortgage and the value of desirable properties was bid up. Therefore, banks can’t afford to foreclose on the properties with expensive foreign mortgages and sell them to others.

There have been suggestions that Poland’s central bank bail out the smaller banks by making the conversions, but then it would be the public on the hook for the literal cost, many of whom are already struggling to make Swiss Franc mortgage payments. It would also provoke a loss of trust in the banking system. That would be a double whammy in a nation where the young are the first generation in its history to take out mortgages and in a world trying to get rid of cash.

Compounding the issue is the fact Poland has already levied a tax on bank assets, especially foreign currency — so Polish banks literally can’t afford to absorb more losses. Demanding the banks convert loans to Polish currency could kill them — and Poland’s economy. Poland also lacks the large gold reserves Switzerland has (though much of it has been moved to the US) to back up its currency, which makes it a lot more volatile.

Buying securities or taking out loans in a foreign currency may seem like a good idea, until that currency’s value goes up, or your own currency goes down, in value. When done on a national scale, one risks severe financial collapses, as were seen in Iceland or slow grinding economic ruts as currently prevails in the European Union. Owning your home or other tangible assets outright are the few safe investments available.


The views expressed in this opinion editorial are the author’s own and do not necessarily reflect Emerging Europe’s editorial policy.


The EU’s Benign Neglect Of Eastern Europe

Bulgaria Needs a Reform-Oriented Government to Take Full Advantage of its EU Membership

bulgaria emerging europe

Could the West At Least Help Ukraine To Insure FDI Against Political Risks?

The Global Outsourcing Industry — the Rise of the Phoenix

Changing Perspectives and Showing That True Romania is a Vibrant Innovative Country

China: A Giant That Is Hard to Crack

International Women’s Day — Let’s Take Action And Then Celebrate

LGBT in CEE — A New Acceptance Is Being Born From Migration

Finalising the DCFTA is Expected to Bring Multiple Benefits to Ukraine

Brexit: Let’s Learn the Lesson and Hope a Better Europe Will Arise

Global Expansion in the Digital Age

Falling into Old Ways in 2017? Ukraine’s Struggle for Functioning Economic Institutions

January Kicks Off an Exciting Year for Emerging Europe

Macedonia’s Controversial Coalition Government

SKOPJE MACEDONIA emerging europe

Impact of Brexit on EU-CEE Not Overstated

theresa may brexit

Will the New Five-day Visa-free Regime Encourage More Visitors to Belarus?

Poland: Is it Ready, and is it Time to Adopt the Euro?

The Sharing Economy Could Bring New Business Models to CEE

A New Division Between Eastern And Western Europe?

The Netherlands’ Objection to the Ukraine-EU Association Agreement could be Costly to Europe

Where’s My Cheese? – The GREAT British Food Tour 2014

Cheese Shop

Big Fish, Small Fish, Where to Fish? On the Eve of the Fourth Industrial Revolution

Central and Eastern European Consumers Are Joining the Global Trends for Change

Moldova Falls Victim to Politicising

moldova emerging europe

People Power Reminds the Government of the Rule of Law

After 25 Years of Restructuring, the Romanian Power Sector Is at a Crossroad

Measuring Growth of Societies with GDP Alone Shows an Incomplete Picture

Europe Needs To Be More Proactive In Embracing Armenia

Poland’s Confusing GDP Growth

A Bosnian Referendum Shows Russia’s Influence in the Balkans—As Well As Its Limits

Outsourcing in Germany: Stop Talking at and Start Talking to

The Capital Markets Union: a New Beginning in the European Financial Sector?

We, the Post-Communist Generation, Have the Skills to Rid of the Past And Create Our Own Future

Are Labour Shortages Driving Economic Growth?

Romania Surviving the Waves of Recent Political Tsunamis in Europe

Hungary’s Nationalist Assault on Free Enquiry

victor orban ceu

Belarus 2020: Turning the Vicious Circle Into an Upward Spiral

Prepare for a New Europe

Not All Quiet on the Eastern Front

Are There Differences Between How Tax Regulations in Poland and IAS Treat Intangible Assets?

Czech Republic Renaming Has Real Economic Costs

Business Moving Forward with Cautious Optimism — Can Investors Win the Confidence Game?

The Competitive Edge in Central and Eastern Europe

SOFIA BULGARIA - MAY 5: View of the Ivan Vazov National Theatre in Sofia on May 5 2016. Sofia is the largest city and capital of Bulgaria.

The Long Tail of Global Expansion

The CEE Region Is Making Advances in Prioritising Waste-to-Energy Projects

How Will Poland Approach the Brexit Negotiations?

History as Destiny? Institutional Erosion in Ukraine and Poland

A Positive and Modern View of Entrepreneurship

Fiscal Policy Predictability in CEE — It’s Time for Change

The Right to Water: Who Can Change Today’s Situation?

The Morawiecki Plan Promises a Brighter Future for Poland

The EU’s Choice: Fundamental Reform Or Disintegration

Europe at Odds over OPAL and Nord Stream 2

The GREAT London Food Scene

Bakery in London

European Volatility Makes Economic Development Slower for Ukraine

Let’s Stop Wasting Time Redefining our Place in Europe

Resignation in Ukraine: War, Revolution, Crisis — Some Things Never Change

United or Divided? Europe in the Face of the Challenges of Tomorrow

Ukraine’s Reputation for Cheap Labour May Not Ring True in the Long-term

Old Fashioned Skulduggery Overshadows the Elections in Moldova

CEE — Do We Need a Launch Pad For Our On-Site Tech Intelligence in the Silicon Valley

Will a Two-speed European Union Side-line the Visegrad Four?

Breaking With Imitations of the Past

The Voice of European Business Must Be Heard Loud and Clear by Brexit Negotiators

Poland’s Unicorn, Slovakia’s Flying Car and the Future of Europe

Polish Tax Laws — Fighting a Winning Battle Against Tax Evaders

Leave a Reply

Your email address will not be published. Required fields are marked *