By Brian Blackstone
ZURICH--One of the world's most coveted currency notes, the
Swiss franc, includes a feature that runs at odds with its
reputation as a safe store of value: It has an expiration date--and
for some notes, that is fast approaching.
Up to one billion francs's worth of 1970s-era bank notes are
nearing their cutoff date, when they will unceremoniously make the
switch from reserve currency to antique wallpaper as their value is
wiped out unless the Swiss government intervenes.
Switzerland is unique among rich countries because its bank
notes--from the 10-franc bill all the way to the mighty 1,000-franc
bill ($1,025)--lose all of their value 20 years after they are
replaced by new ones. The series from the 1970s was replaced in
2000, so their value vanishes in 2020. Franc coins are always
usable.
That two-decade buffer gives people plenty of time to prepare,
but the very notion of an expiring currency contradicts the Alpine
country's reputation for financial safety and security that has
driven the franc's value higher in recent decades.
The government and central bank want the law to change. If it
doesn't, then franc notes introduced starting in 1976 will meet
this fate in a couple of years. They were withdrawn from
circulation to make way for a new series of bank notes that had
fresh designs, colors and sizes. That is when the 20-year clock
started ticking for people to take them to the Swiss National Bank
for new ones.
So starting May 2020, people won't be able to exchange the
roughly one billion francs's worth of 70s-era notes that are still
out there. They will become worthless relics, the same thing that
happened to bills going back to 1907.
It is tough to pinpoint exactly where the one billion in old
francs is. Some notes likely vanished naturally, accidentally
discarded or lost. Some could be with tourists or workers who left
Switzerland with cash and never returned. In recent years, around
30 million to 40 million francs's worth of notes have been
exchanged annually. There were still 1.1 billion francs of the
1970s-series notes in 2016.
The central bank doesn't get to pocket the unclaimed money and
the Swiss have found an innovative use for it. Under a century-old
law, the SNB transfers the equivalent amount worth of obsolete bank
notes to a Swiss fund that insures against natural disasters like
avalanches. It recently made money available to farmers and wine
growers hit by an April freeze.
There were 244 million francs of 1950s-era notes that were
withdrawn from circulation in 1980 and lost all their value in
2000. The SNB transferred that amount to the insurance fund. The
amount of worthless francs from earlier last century was much
smaller.
The Swiss federal council launched a legislative process in
August to cancel the expiration of franc bills, so that people will
always be able to exchange the 1970s-era notes and subsequent ones.
It wouldn't apply to earlier notes. The consultative period lasts
until mid-November, then the legislation will move to parliamentary
committees.
"The purpose is to avoid that people find themselves with bank
notes that have no value," the federal council said in August.
"Switzerland would adapt to the practices of other
industrialized countries," that don't have a fixed exchange period,
it said.
In the U.S., currency is legal tender no matter when it was
issued. The same holds for euros. Though the European Central Bank
will stop issuing 500-euro ($593) notes in 2018, they will always
keep their value. Germans can still exchange old deutsche marks for
euros at the Bundesbank. British pound notes always hold their
value, and while the round, GBP1 coins lost their legal status this
week, they can still be deposited at many commercial banks.
Despite their limited shelf life, Swiss francs are highly
coveted, particularly the 1,000 franc note that is one of the
highest denomination pieces of money in the world. The value of
Swiss notes in circulation has increased more than 60% since the
start of 2010 to 76.5 billion francs, despite the rise of
electronic payments and digital currencies.
Of that, 47.3 billion francs are in thousand-franc notes, up
more than 70% from 2010.
One drawback of the Swiss plan is that it might make large franc
notes even more desirable as a permanent store of value in an era
of negative interest rates or to hide money from tax authorities.
That could lead to upward pressure on the already strong franc.
"People would purchase even more 1,000 franc notes and keep them
in their kitty," if the time limit is lifted, said Jean-Daniel
Gerber, president of SGG, which promotes social cohesion in
Switzerland, who recently wrote an opinion piece on the debate over
old francs.
"The Swiss franc may rise even more and we think it's already
overvalued, " he said. And without SNB money, the disaster
insurance fund might have to find other revenue sources if there is
a natural calamity.
There isn't a breakdown of how much of the 70s-era bank notes
are in the big 1,000 franc bills, which are known as "ants" because
of the three ants and anthill design on the back. "Paying with an
ant" was what the Swiss called using the old 1,000 franc notes.
Unless the law changes, those ants face extinction.
Write to Brian Blackstone at brian.blackstone@wsj.com
(END) Dow Jones Newswires
October 20, 2017 10:03 ET (14:03 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.