What Can We Learn from the Failed Swiss Referendum on Gold?

The rejection vote was clear: 77.3% of the Swiss people voted against the gold initiative. As a reminder, the Swiss Gold Initiative was proposing three constraints: the obligation for the Swiss National Bank (SNB) to own at least 20% of its assets in gold; banning all future gold sales from the bank; and repatriation of its gold stored abroad. A YES vote would have acted like a thunder strike and brought about a complete turnaround of the lax monetary policies of Switzerland, Europe (ECB), the United States and Japan. But, sadly, this won’t be the case. Let’s try to understand why.

First of all, government officials along with the SNB president, most political parties and media have been firmly opposed to it, which made the task more difficult right from the start. But let’s not be too quick to put the whole blame on external factors: let’s examine the nature of the proposal itself. A question divided into three conditions doesn’t make things simple, especially since two of them may be contradictory: owning at least 20% of assets in gold while forbidding any selling means that, should the gold price appreciate substantially, the percentage of gold could jump to 30%, 40% or more of balance sheet assets with no means of lowering that percentage. And, by the way, why 20% and not 15% or 30%? Another important element: in order to reach this 20% the SNB would have had to purchase 70 billion CHF worth of gold (1,500-1,800 tonnes)... and the Swiss do not like to vote to approve expenditures! In a more fundamental way the referendum, without saying so, was rooting for a return to a gold standard, or rather an almost-gold standard, since 20% of reserves in gold wouldn’t cut it. Maybe it should have been worded as such! ... But it might not have changed anything, since there is not enough awareness yet.

What this failure means is clear: people won’t understand until there is a crisis. This is because a debate on monetary matters remains an abstraction and cannot replace real life experience. In this context the SNB, elated with the results, has reaffirmed it may thus “pursue its monetary policies under the same conditions” and that “bottom pegging (1 euro= 1.20 CHF) remains its main instrument”. It has also reaffirmed its “needed determination” and, “to this end, it stands ready to buy currencies in unlimited amounts”. Long live the “unlimited” printing press! And thanks for being so candid about it.

Here is a suggestion for Swiss defenders of gold: never mind the SNB and aim toward a more modest and more concrete goal by promoting the idea of gold as complementary money. Complementary money is gaining ground and, as a matter of fact, its oldest form was born in Switzerland in 1934: WIR, a form of money for businesses. The main obstacle is lifted, since there is no tax applicable for selling or buying gold in Switzerland. Freely using 20-franc gold coins could be encouraged and minting new coins of the same weight could help everyone acquire some and use them for transactions (as well as bars). There is certainly no need of a referendum for that. The Swiss franc would remain as legal tender but gold could circulate as well, as long as the buyer and the seller agree. Gold would then compete with the Swiss franc and, the more people trust it, the more space it will fill... This would be a more concrete approach to the problem, and it may be more convincing.