The 1920s: the hard franc and the rise of Zurich

Deflation and the return to parity

The immediate post-war years were a period of monetary and economic turbulence. The Swiss franc, which had held its value during the war better than the currencies of the belligerents, was at first weak against the dollar, since the United States had kept its gold standard. As world prices began to fall from 1920 onwards, however, the national bank pursued a policy aimed at restoring the pre-war value of the franc. The Historical Dictionary notes that post-war policy concentrated on fighting inflation and stabilising the franc, that price indices began to decline from 1920 onwards and that the franc regained its pre-war parity in the autumn of 1924.¹

The adjustment was painful. Baltensperger and Schaltegger report that the price level fell by almost 40 per cent between 1920 and 1922, accompanied by a significant fall in production and a sharp rise in unemployment.² Straumann describes the downturn of 1920 and 1921 as a severe crisis, with high unemployment, deflation and an appreciating franc that led exporters to demand the rollback of the 48-hour week that had only just been introduced.³ The deflation of the early 1920s thus confronted the Swiss economy for the first time with a dilemma that would recur throughout the century: a strong franc protected savings and attracted capital but hurt exports and employment.

The national bank and the Federal Council nevertheless held to their course. The Historical Dictionary’s article on the national bank states that the gold parity was restored de facto in 1925 and formally in 1929. The formal restoration took the form of a gold exchange standard. From 1929 the notes of the national bank could be redeemed in gold or in gold-convertible foreign currencies, in line with the recommendations of the international monetary conference held in Genoa in 1922.⁴ Baltensperger and Schaltegger emphasise that Switzerland was one of only five countries that returned to the gold standard at their pre-war parity in the 1920s. For them, this reflected a determined will to restore the stability-oriented conditions of the pre-war era.⁵ The small denominations that the war had required were gradually withdrawn as gold coins reappeared. Gerhard records that the number of 5-franc notes in circulation peaked at 9.7 million in 1922 and had fallen to four million by 1924.⁶

Flight capital and the international business of the Swiss banks

The return to gold parity made the Swiss franc one of the few European currencies whose value could be taken for granted. In a continent in which the German mark, the Austrian crown and the Hungarian crown were destroyed by hyperinflation, the Italian lira was stabilised only in 1927 and the French franc lost four fifths of its pre-war value before Raymond Poincaré stabilised it in 1926 and 1928, the Swiss franc became a store of value in its own right. Foreign savers who wished to protect their wealth against inflation, confiscatory taxation or political upheaval found in Switzerland a combination that no neighbouring country could offer: a convertible currency, political stability, a neutral state, an efficient banking system and a tradition of discretion. Zurich, which had the largest banks, the most active stock exchange and, from 1922, the monumental seat of the national bank’s Governing Board, benefited more than any other Swiss city.

The growth of the Swiss banks in the 1920s reflects this influx. Berbenni cites estimates according to which the funds managed by the major Swiss banks grew more than fivefold in ten years, from 25 billion francs in 1920 to 141 billion in 1930, both figures expressed in Swiss francs of 1990.⁷ The Historical Dictionary’s article on the financial centre gives a comparison that is even more telling. In 1913 the combined balance sheets of the Swiss big banks amounted to 26 per cent of those of their French counterparts. By 1929 the figure was 73 per cent. In relation to their German competitors the growth was similar. Swiss insurers followed the same path, while the market share of foreign insurance companies in Switzerland fell from 34 per cent in 1913 to 3 per cent in 1929 and the premium income of Swiss insurers from abroad tripled in real terms.⁸ The insurance side of this story, from the Rentenanstalt to Swiss Re and the Zurich, is told in Part E of this book. What matters here is the sheer speed of the change. In fifteen years a small country whose banks had been junior partners of Paris and Berlin became a creditor and asset manager of European importance.

Much of this money came from France, Germany, Italy and Austria. The motives varied. French depositors fled the falling franc of 1924 to 1926 and the tax increases of the left-wing governments of those years. German depositors sought protection against the inflation of 1919 to 1923 and, after the stabilisation of 1924, against the renewed political uncertainty of the Weimar Republic. Italian depositors moved assets out of reach of the fascist regime, which introduced exchange controls and pursued a policy of forced revaluation of the lira from 1926. Not all of this money was undeclared in its country of origin, but a considerable part of it was. The interest of foreign tax authorities in the Swiss accounts of their residents became a political issue in the late 1920s and early 1930s. It culminated in the affair of 1932, in which the French police searched the Paris premises of the Basler Handelsbank and discovered lists of French clients,⁹ an episode that the Historical Dictionary mentions in connection with the withdrawal of French flight money from that bank.¹⁰ The legal consequences of that affair, and the question of how far it contributed to the criminal protection of banking secrecy in the Banking Act of 1934, are examined in chapter F.II.

The foreign money was not simply held on deposit. Investing it in large part abroad, the Swiss banks became intermediaries in international capital flows on a scale that the country’s own economy could not have justified. The Historical Dictionary’s article on capital movements records that between 1924 and 1934 foreign securities worth more than 3.9 billion francs were placed on the Swiss market, and that about half of them came from France, Germany and the United States.¹¹ The Zurich banks led many of these issue syndicates. They also expanded their foreign exchange and money market business, their securities trading and their custody of foreign securities for foreign clients. Zurich thus acquired the double function that would characterise it for the rest of the century: a place where foreign wealth was deposited and managed, and a place from which Swiss and foreign capital was lent to foreign borrowers.

Germany: hyperinflation, recovery and exposure

No foreign country mattered more to Zurich in this respect than Germany. The economic ties between German-speaking Switzerland and the German Empire had been close since the nineteenth century, with many Zurich firms, banks and families having German partners, subsidiaries and relatives. The German hyperinflation, which culminated in November 1923 when a US dollar cost 4.2 trillion marks, ruined German holders of mark-denominated assets and caused losses to foreign investors who had bought marks in the hope of a recovery.¹² Swiss speculators and banks were among them, although the scale of their losses is difficult to measure. At the same time the inflation drove German capital into Swiss francs and made Zurich a refuge for German wealth.

After the currency reform of 1923 and 1924 and the Dawes Plan of 1924, which regulated reparations and opened the way for foreign lending, capital flowed into Germany on a large scale. Interest rates there were far higher than in Switzerland. German industry and municipalities needed capital for reconstruction and rationalisation, while the new Reichsmark appeared stable. Swiss banks participated in this lending with enthusiasm. The Historical Dictionary notes that in the late 1920s a large part of the Swiss banks’ foreign assets consisted of short-term credits to Germany. Much of this was financed with short-term foreign deposits. The banks took in money from French, Italian or German clients at low Swiss rates and lent it on to German banks and companies at high German rates. The maturity and currency structure of this business was fragile. As long as confidence held, it was highly profitable. Once confidence failed, the banks faced withdrawals by their depositors while their German claims were frozen.

The exposure was not evenly distributed. Some banks concentrated on Germany more than others. The Basler Handelsbank, founded in 1863 by representatives of Basel industrial and merchant capital and private bankers, had become a big bank in the 1890s. It reached its peak in 1928 with a balance sheet of 666 million francs and a share capital of 100 million francs and had focused heavily on German business.¹³ The Eidgenössische Bank, founded in Bern in 1863 with the support of two Parisian banks and with the Bernese Federal Councillor Jakob Stämpfli as its first president, had moved its head office to Zurich during a reorganisation in 1892 and had become a respected big bank there. According to the Historical Dictionary, its one-sided engagement in Germany led to heavy losses and a severe crisis in the 1930s.¹⁴ Bank Leu, the oldest of the Zurich big banks, whose origins in the Leu’sche Fonds of 1755 are described in Part C of this book, had similarly built up considerable business in Germany and central Europe during the 1920s.

Zurich on the eve of the crisis

By 1929 Zurich had become an international financial centre in a sense that it had not been in 1913. The number of banks and bank employees had grown. While the big banks built new head offices on Paradeplatz and Bahnhofstrasse, the Zurich stock exchange developed an active trade in foreign as well as Swiss securities. The national bank’s Governing Board worked from its new building on Börsenstrasse, a few steps from the Kreditanstalt, the Bankverein’s Zurich seat and the Bankgesellschaft. The city had become the place where the Swiss money market was made and where the decisions of the central bank were taken in daily contact with the commercial banks. Geneva, the subject of the companion volume, remained the centre of private banking in the French tradition and of the international organisations. Basel had the Bank for International Settlements from 1930 and the head office of the Bankverein. Neither city, however, matched the concentration of banking, insurance, exchange and central bank functions that Zurich had achieved.

This concentration rested on foundations that were stronger in some respects than in others. The franc was hard, the national bank was credible and the political system was stable. The banks, on the other hand, had become dependent on foreign deposits that could be withdrawn at short notice and had lent a large part of their funds to a single foreign country whose political and economic stability was doubtful. The crisis of 1931 would expose this vulnerability with brutal clarity.

Notes

1. HLS, “Geld- und Währungspolitik”, https://hls-dhs-dss.ch/de/articles/013748/2010-08-26/, section on the years 1914–1924. ↩
2. Baltensperger and Schaltegger, “100 Jahre Hyperinflation”, IWP 2023, https://admin.iwp.swiss/wp-content/uploads/2023/11/100-Jahre-Hyperinflation.pdf. ↩
3. Straumann, “Ein Kind seiner Zeit”, Die Volkswirtschaft, 2020, https://dievolkswirtschaft.ch/de/2020/09/ein-kind-seiner-zeit/. ↩
4. HLS, “Geld- und Währungspolitik”, https://hls-dhs-dss.ch/de/articles/013748/2010-08-26/; Kloter, “Goldwährung” (HLS), https://hls-dhs-dss.ch/de/articles/013742/2007-01-04/, on the Genoa conference of 1922 and the gold exchange standard. See also: Tanner, “Schweizerische Nationalbank (SNB)” (HLS), https://hls-dhs-dss.ch/de/articles/013747/2015-06-29/. ↩
5. Baltensperger and Schaltegger, “100 Jahre Hyperinflation”, IWP 2023, https://admin.iwp.swiss/wp-content/uploads/2023/11/100-Jahre-Hyperinflation.pdf. ↩
6. Gerhard, “Von Gold und Silber zum Papier”, 2024, https://www.geldscheine-online.com/post/von-gold-und-silber-zum-papier-der-banknotenumlauf-in-der-schweiz-1907-bis-1939. ↩
7. Berbenni, “Italian Offshore Wealth in Switzerland before and after WWII”, INET working paper, https://www.ineteconomics.org/uploads/papers/Berbenni-Pisa-Paper.pdf, which also describes capital from France, Germany, Italy and Austria pouring into Swiss banks in the interwar period. ↩
8. HLS, “Finanzplatz”, https://hls-dhs-dss.ch/textes/d/D45549.php, section on the interwar period, with the ratios of Swiss to French and German big bank balance sheets in 1913 and 1929 and the figures on the insurance industry. ↩
9. Le Temps, “Un scandale suisse à Paris en 1932”, https://www.letemps.ch/opinions/un-scandale-suisse-paris-1932, drawing on the work of Sébastien Guex: the French police searched the premises used by the Basler Handelsbank (Banque commerciale de Bâle) in Paris on 27 October 1932 and found documents naming some 1,000 French account holders. The affair was raised in the Chamber of Deputies by the Socialist deputy Fabien Albertin in November 1932. ↩
10. Bernard Degen, “Basler Handelsbank”, in: HLS, version of 1 May 2002, https://hls-dhs-dss.ch/de/articles/044716/2002-05-01/, which refers to the withdrawal of French flight money and to the “Berthoud scandal” of 1932. ↩
11. Historisches Lexikon der Schweiz, “Kapitalverkehr”, https://hls-dhs-dss.ch/textes/d/D13839.php, which also gives a contemporary estimate of Swiss capital abroad before 1914 of 7.5 billion francs, of which 5.6 billion were securities and 1.2 billion direct investment. ↩
12. Baltensperger and Schaltegger, “100 Jahre Hyperinflation”, IWP 2023, https://admin.iwp.swiss/wp-content/uploads/2023/11/100-Jahre-Hyperinflation.pdf, on the dollar rate of the mark in November 1923 and the contrast between German monetary expansion and Swiss stabilisation. ↩
13. Degen, “Basler Handelsbank” (HLS), https://hls-dhs-dss.ch/de/articles/044716/2002-05-01/, on the foundation, growth and German orientation of the bank and on its balance sheet in 1912, 1918 and 1928. ↩
14. Jan-Henning Baumann, “Eidgenössische Bank”, in: HLS, https://hls-dhs-dss.ch/textes/d/D42023.php, on the foundation of 1863, the renunciation of note issue in 1882, the move to Zurich in 1892, the losses caused by its German engagement in the 1930s and the sale of most of its business in 1945. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.