Swiss Bureaucrats In Gold Panic

Tyler Durden's picture

Submitted by Pater Tenebrarum of Acting-Man blog,

Switzerland's Keynesian Dunderheads

There is an initiative underway in Switzerland to once again increase the gold backing of the Swiss Franc. Readers may remember that the Swiss Franc was the currency that held out the longest with an almost 100% gold backing. Then came the 1990s and plenty of political pressure, until the Swiss buckled and began to sell most of their gold – at ridiculously low prices, natch.

We don't know what kind of thinking informed Switzerland's central bankers at the time, but we certainly know that their modern successors are a bunch of Keynesian dunderheads and committed central planners. If you don't believe us read their papers, which can be found on the SNB's web site, or just look at their policies (the SNB does maintain a very good web site by the way, we have to give it that. A number of euro area NCBs would do well to adapt their useless web sites along similar lines).

Not surprisingly, they have been printing money like crazy in recent years, as they are suffering from deflation-phobia, similar to most modern-day central bankers (as you will see further below, this fear is quite misguided).

The SNB's flexibility may be curtailed a little bit if a higher gold reserve at a fixed percentage were to become a legal requirement. From the perspective of central bankers, the problem with gold is that they cannot print it, although it is certainly not immune to shenanigans in the hands of minions of the State.

Given the current thinking at the central bank, the above mentioned efforts have brought its members and its political supporters to the barricades to sotto voce denounce the initiative to increase the franc's gold backing. Parliament has already rejected it, but there will be a referendum, and that referendum will be binding.



Destroying 'Credibility' with Gold?

In the course of the debate over the gold initiative, a number of absurd arguments have been forwarded by all those who directly benefit the most from the central bank's inflationary policies (the government) and those whose power is derived from the status quo.

Mineweb reports:

“Swiss parliamentarians urged rejection of a popular initiative that would curtail the Swiss National Bank’s independence by requiring it to hold a fixed portion of its assets in gold.


Members of the Swiss parliament’s lower house voted 129 to 20 with 25 abstentions today against the plan, which demands that at least 20 percent of the central bank’s assets be in gold. It would also disallow the sale of any such holdings and require all SNB gold be held in Switzerland.


No date for a national vote has yet been set. The government in November also recommended the initiative be opposed, saying it would impinge upon the SNB’s ability to conduct monetary policy. Parliament and the multi-party government issue recommendations on all national referendums as a matter of procedure.


“The corset this initiative wants to put our central bank in is so tight, it would suffocate,” Prisca Birrer-Heimo, a member of the Social Democrats, told lawmakers in Bern. “Gold investments aren’t risk free.”


The balance sheet of the SNB, which owned 1,040 tons of gold as of end March, has expanded due to the currency market interventions it has used to defend the cap of 1.20 per euro on the franc, set in September 2011. The SNB held foreign-exchange reserves of 438.4 billion francs ($500 billion) in April, a sum equal to about three quarters of the country’s annual economic output.


“Accepting this initiative would crimp the bank’s ability to act globally at a particularly sensitive time,” said Dominique de Buman, a member of the Christian Democrats.


Members of the Swiss People’s Party SVP started the initiative and collected the requisite 100,000 signatures last year after failing to get backing for the matter in parliament.

“We need gold to give the Swiss franc a credible backbone,” said Luzi Stamm, a member of the SVP who founded the campaign “save our Swiss gold.”


SNB President Thomas Jordan took the extraordinary step of commenting on politics last year when he urged rejection of the initiative, saying it would crimp the Zurich-based institution’s independence and force it into “large-scale” purchases to meet the required 20 percent threshold.


As of April 2013, more than 70 percent of the SNB’s gold was in Switzerland, with about 20 percent at the Bank of England and 10 percent at the Bank of Canada, according to Jordan. The initiative “reduces the credibility of the SNB’s policy and limits its ability to act when its necessary,” Finance Minister Eveline Widmer-Schlumpf told the chamber.”

(emphasis added)

The arguments against the initiative highlighted above would all be regarded as arguments for it by us. There would be absolutely nothing wrong with putting the central bank into a “tight corset” (which is in any case a hopeless exaggeration.  The initiative's proposal is far too modest, if anything). In fact, it would be a boon, especially at “this particularly sensitive time”.

It could not possibly lower the 'credibility' of the SNB if it were really shorn of a bit of its power. In any case, who cares about the credibility of a bureaucracy, when the thing that really counts is the credibility of the coin of the realm?  How on earth can a larger gold backing “diminish the credibility” of the issuer of the currency? This is probably the most absurd argument we have ever heard in such a context.

What Thomas Jordan and Ms. Widmer-Schlumpf are really referring to is the absurd 'deflation fighting' policy of the SNB (in short, the SNB wants to be a 'credible' inflationist!). This is all the more bizarre when considering that Switzerland has some of the highest prices in the world. It could sure use a bit of genuine deflation.

The central bank has introduced a floor rate for the EUR-CHF exchange rate, and in order to defend it, has done everything from introducing 'ZIRP' to buying up truly staggering amounts of foreign currency (but it would be a problem to buy a little gold?). It has of course done so with CHF created from thin air, in the process embarking on the biggest monetary inflation Switzerland has ever experienced in such a short time span.


Switzerland, M-1,M-2-ann

The Swiss monetary aggregates M1 and M2 in CHF billion. M1 consists of currency, sight and transaction deposits, all of which are available on demand. M1 thus corresponds to money TMS-1 (or money AMS as Frank Shostak refers to it). M2 cannot really be regarded as a broader 'true money supply', as it includes savings deposits.  While these are not time deposits, they do sport an annual limit for withdrawals without notice. UBS e.g. has a limit for such withdrawals of CHF 50,000 per year per savings deposit. Larger amounts are subject to a three month notice period. However, this means that a certain percentage of these savings deposits is indeed available on demand (all deposits that amount to less than CHF 50,000 and CHF 50,000 of every deposit sporting a higher balance). The rest is probably available at a penalty discount, but the notice period enables banks to delay payouts in the event of a bank run. We were not able to ascertain  how large the amount in savings deposits that is theoretically available on demand is, but  the actual broad money supply 'TMS-2' must be somewhere between M1 and M2. The growth in Switzerland's money supply aggregates since 2000 and since 2008 has been vast. Since September 2008: M1 + 63.1%, M2 + 56.81%. Since September 2000: M1 + 114.82%, M2 + 137%. Some 'deflation'!



There should be no 'flexible currency' and no central planning of money. They are at the root of the boom-bust cycle, the very reason for the various crises that have beset Western economies in recent decades. Switzerland would be far better off if no-one had the power to meddle with its money supply. As it is, there has been plenty of meddling already, and quite a bit of suspension of disbelief would be necessary to conclude that there will be no price to pay. As always in monetary matters, the bill will be presented at an unknown future date, but it could be a very big bill in this case.


Swiss real estate prices


After falling into a low in the year 2000, Swiss real estate prices have embarked on a major increase in concert with the spurt in money supply growth that started at the same time. This is of course no coin coincidence. In foreign currency terms this is a much larger boom, as the CHF has been extremely strong. Prices in Switzerland are generally so high, that the world's highest minimum wage is also going to be subject to a referendum

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
NotApplicable's picture

We're gonna need a bigger war.

Ralph Spoilsport's picture

Why the fuck is there a Swiss army knife?

Name one war the Swiss have been in....

unplugged's picture

because on that day the only other country in the bidding to make knives was France

Anusocracy's picture

Needing a flexible currency is like needing a living constitution.


knukles's picture

You guys ever seen the manual accompanying a French bayonet?
It says they're the best in the world for fondue.

Random_Robert's picture

"for Sale - One French military rifle.  Never fired, only laid down once..."

gcjohns1971's picture


In addition to being useless, it is also an oxymoron.

If it is 'flexible' then it can't consistently price goods CONCURRENTLY - ergo it is not a currency.

If it is 'flexible' then it can't constitute anything, any more than sea-foam can constitute a house!

Pool Shark's picture



Maybe the Swiss don't need to go to war because they HAVE a knife. Deterrence anyone?

[I hear it keeps elephants away too; haven't heard of any in the area since Hannibal...]


natty light's picture

To be fair, In World War I the French held the Germans at the Marne, and the Germans never made it to Paris.

Manthong's picture

My little Swiss Francs are 100% backed by gold.

Oh wait, I guess that’s because they ARE gold.

Mercuryquicksilver's picture

“Gold investments aren’t risk free.”

Didn't your read the arguement against gold backed currency above?

Shit, I wish someone told me this years ago BEFORE I started buying gold.

Uchtdorf's picture

There's a reporter in Canada that wants to know what backs gold.

Keyser's picture

I dunno, perhaps 10,000+ years of known history? 


Stoploss's picture

It's the only thing they have to fight their way out of the paper bag...

unplugged's picture

universal tool for watch repair ?

moonman's picture

It is all about the toothpick

Dewey Cheatum Howe's picture

Napoleonic ones but they were still under control the French at the time.

Dane Bramage's picture

No one fucks with the porpupine (though the nazi's did have op tannenbaum in the works).

unplugged's picture

somebody's gotta go back and get a shitload of dimes

CheapBastard's picture


"They don't only buy ETFs or futures; they buy physical gold," said Stadler, who runs the Swiss bank's services for clients with assets of at least $50 million to invest.


Ok,'s from Sept 2010 but from what I've read the Swiss are still quite active in their pursuit of security.

ConfederateH's picture

Not in my experience.  The Swiss are too busy patting themselves on their backs for having known how important it was that Obama got elected.  They believe the entire PC/multiculti spiel.  They believe that all those secret bank accounts belong to "cheats".  Gold never enters their socialist welfare state reality bubble.

Spitzer's picture

It's sad.

Gone forever are the old hard money euro conservatives like the Swiss or Dutch. Gone forever

DoChenRollingBearing's picture



Yes, I miss that kind of thinking too, Spitzer.

Since that kind of thinking is gone, I will tend to my own little golden garden.

ATM's picture

Not gone forever. Gone until they re-learn the lessons that were forgotten.

Panafrican Funktron Robot's picture

"Gold investments aren't risk free."

Compared to what?  Other foreign currency holdings?  Bonds?  Collateralized debt securities?  I think what he was really implying is what a lot of these financier types imply, that big-6 government bonds and "official" big-6 currencies are risk free holdings.  

gcjohns1971's picture

If he means that, " the price of gold measured by fiat paper of discretionary value may vary widely"  then I agree.

I agree with the statement - however it is meaningless.  In terms of goods and services it does not vary widely.

ConfederateH's picture

The Swiss have no clue, just like the rest of Europe.  So deep is the Keynsian programming.  A typical statement would be:  "we can't have a gold standard, otherwise how would the SNB protect us from a deflation".

NotApplicable's picture

When one falls victim to attributing human traits to abstract collectives, all that another has to do is to infiltrate the power structure in a few key places, and the next thing you know, the institution has been successfully undermined.

Remember all of the press about Swiss banks protecting criminals a few years back? Which became the lever to get UBS to "cooperate?" (even though it was illegal to do so)

Ferdinand Lips book, "Gold Wars" is an interesting tale about the take-down of Swiss banking.

unplugged's picture

my favorite is "but there's not nearly enough gold"

Mercuryquicksilver's picture

It becomes apparent which central planers perpetuate the fraud and which ones are just stupid. eg. Bernanke:Yellen::Fraud:Stupid

DoChenRollingBearing's picture

Yes, unplugged, there is plenty of gold.  Priced correctly, gold can cover (back) all currencies...

unplugged's picture

just do the math is all, e.g.

gold $ per oz  =  sum of all known $US / total oz of known gold


pods's picture

Nobody can get off the debt money plantation because their currency would skyrocket and the country would not be able to export anything.

Cruel system that binds us all together and prevents any of us from breaking free. All the while the bankers sit back and make coin off printing currency.

We were offered a ring that represented power, and as idiots, took the ring without realizing there was one ring that was binding us all.


caustixoid's picture

Nice metaphor.  Until the petrodollar dies we're all ringwraiths.

JustObserving's picture

Members of the Swiss parliament’s lower house voted 129 to 20 with 25 abstentions today against the plan

That is your infinite NSA spying and blackmail working for you. Look how well NSA spying has worked with Merkel.  She scaled back the investigation into NSA spying and refused to let Snowden into the country to testify.

On the day of Chancellor Angela Merkel’s trip to the US, the German government made clear that it would thwart any further investigation into the spying activities of America’s National Security Agency (NSA).


While Merkel was being welcomed at the White House Friday by President Barack Obama, the Bundestag (parliamentary) Committee of Inquiry into the NSA received a government file on the questioning of whistle-blower Edward Snowden. Over 27 pages, the government made unmistakably clear that under no circumstances would it permit the questioning of Snowden on German soil, claiming it would endanger the “welfare of the state.”

ConfederateH's picture

There is also the carrot.  Hildebrand went to Blackrock a made man after having sold off half of Switzerlands gold.  Now we have to listen to him and his cronies talk about how important it is the the SNB remain "independent".

caustixoid's picture

I thought you were going to say the NSA knew about Merkel's use of a carrot as blackmail...

Jam Akin's picture

That would be a HUGE story...concerning the root cause of much pain and suffering.

Libertarian777's picture

unfortunately this is exactly what occurs in the USA as well.

They never say it's for the 'welfare of the people'

it's always for the welfare of the STATE. 

The STATE is NOT 'the people'.

Ironically the constitution does talk about 'general welfare' of the people. However in this regard Congress, the administration and the judicial branch have all failed. 'general welfare' means the people overall. Not one particular special interest group with the loudest lobby.

NoTTD's picture

Those SNBers sure like to use the word "crimp" - as though it's a bad thing to keep them in check.

agstacks's picture



Beauty is in the eye of the beholder.  

"How will we ever be able to conduct our monetary-debt experiments on you!"

"You won't. That is the point."

Fucking Bankers.

NoTTD's picture

I assume this will be right along side the "minimum income" referendum the socialists are putting on the ballot this fall.


That could produce an interesting result.

ATM's picture

They should also put a minimum preice increase referendum on the ballot. It ould require that prices for all things simply rise by a set percentage every day. 

Viola! Perfect inflation.

Ratscam's picture

put the minimum grade at university on a C level, everyone will pass!
I,m sure this will help grade inflation!

the tower's picture

Most people (90% +) already make more than the proposed minimum wage. Even the cheapest supermarkets offer it already. It's a non-issue.

Cacete de Ouro's picture

It would be interesting to see the recent BIS governors meeting minutes that discuss the Swiss parliamentary initiative, assuming that the topic was discussed, which it undoubtably was.

G10 governors: "Jordan, you have this gold thing under control, don't you?"
Jordan: "Don't worry, we have it taken care of. We gave the Social Democrats 5 shiny ounces each to vote against it, and for the others, well, let's just say we have various video tapes that would make Heidi blush'.

Chortling and guffawing ensues around the board table.