Swiss National Bank Explains Why It Is Against Repatriating Gold

Swiss National Bank Explains Why It Is Against Repatriating Gold

Submitted by Tyler Durden on 10/10/2014 10:06 -0400

The Swiss National Bank has lashed out at the so-called “gold initiative” efforts to “Save Our Swiss Gold” unsurprisingly proclaiming it as a bad idea. As Ron Paul previously noted, “The gold referendum, if it is successful, will be a slap in the face to those elites,” and so the full-court press ahead of the Nov 30th vote has begun (a la Scotland fearmongery) as SNB Vice Chairman Jean-Pierre Danthine explains how a ‘yes’ vote for the initiative “would severely constrain the SNB’s room for manoeuvre in a future crisis,” as it “poses danger to the conduct of a successful monetary policy.” His reasoning (below) is stunning…

Via Jean-Pierre Danthine, Vice Chair Swiss National Bank

On 30 November, the Swiss electorate will vote on the so-called “gold initiative” (“Save our Swiss gold”, in full), which, paradoxically, would severely constrain the SNB’s room for manoeuvre in a future crisis. Let me digress for a few minutes to explain why the SNB is opposed to this initiative.

The initiative is calling for three things:

first, the SNB should hold at least 20% of its assets in gold;

second, it should no longer be allowed to sell any gold at any time; and

third, all of its gold reserves should be stored in Switzerland.

Let me address the last point first. Today, 70% of our gold reserves are stored in Switzerland, 20% are held at the Bank of England and 10% at the Bank of Canada. As you know, a country’s gold reserves usually have the function of an asset to be used only in emergencies.

For that reason, it makes sense to diversify the storage locations. In addition, it makes sense to choose locations where gold is traded, so that it can be sold faster and at lower transaction costs. The UK and Canada both meet that criterion. In addition, they both have a strong and reliable legal system and we have every assurance that our gold is safe there.

The initiative’s demand to hold at least 20% of our assets in gold would severely restrict the conduct of monetary policy. Monetary policy transactions directly change our balance sheet.

Restrictions on the composition of the balance sheet therefore restrict our monetary policy options. A telling example is our decision to implement the exchange rate floor vis-à-vis the euro that I mentioned above: with the initiative’s legal limitation in place, we would have been forced during our defence of the minimum exchange rate not only to buy euros, but also to buy gold in large quantities. Our defence of the minimum exchange rate would thus have involved huge costs, which would almost certainly have caused foreign exchange markets to doubt our resolve to enforce the rate by all means.

Even worse consequences would result from the initiative’s proposal to prohibit the sale of gold at any time. An increase in gold holdings could not be reversed, even if necessary from a monetary policy perspective. In combination with the obligation to hold at least 20% of total assets in gold, this could gradually lead the SNB into a situation where its assets would mainly consist of gold: each extension of the balance sheet for monetary policy reasons would necessitate gold purchases, but whenever the balance sheet needed to be reduced again for the same reasons, we would not be able to resell our gold holdings. This would severely restrict our room for manoeuvre.

Furthermore, because gold pays no interest or dividends, the SNB’s ability to generate profits and distribute them to the Confederation and the Cantons would be impaired.

As a final point, note that currency reserves which cannot be sold are not truly reserves. It does not make sense to call for an increase in emergency reserves – gold holdings – and simultaneously prohibit the use of these reserves even in emergencies.

The SNB’s overriding objection to the gold initiative stems from the danger it poses to the conduct of a successful monetary policy. It would severely impair the SNB’s ability to fulfil its constitutional and legal mandate to ensure price stability while taking due account of economic developments, in the interests of the country as a whole.

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We will hazard a guess that the voting will go exactly as Scotland’s independence vote went – young vote for it, old against it… as fearmongering status quo managers step up the propaganda with no regard for what happens next.


  • seekingtruth

    What do you think about this decision?

    • theunhivedmind

      I can understand what the Swiss bankers are thinking and I can understand what the other side is thinking but not one of them is tackling the problem properly are they? We do not need a gold standard and we do not want a Venetian debt slavery system anymore, so what is the answer? A true credit system using national treasuries controlling note of credit for each nation no different to the Bradbury Pound and Greenback. If you want to know how to progress economically then look to the model put forward by Roger Hayes (Lawful Bank/British Constitutional Group). Right now I am all for the BRICS Alliance but I still know that there are some better ways of doing things but sometimes we need baby steps to get there especially when trying to rid the World of such an evil and rooted system as we have now and thus only Putin can achieve this next step. You will never have Roger Hayes like beings changing the world they do not have the status and power to do it and they are completely at the other end of the system fighting it hard. So you have to start with of course Vladimir Putin with a lot of power and then the likes of Nigel Farage. After those then more deeper anti-Venetian practices have more of a chance of acceptance but not until. Look at the hassle UKIP has on a daily basis from the media and some public so imagine how much harder it would be for the BCG!

      -= The Unhived Mind

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