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The Swiss Referendum On Gold: What's Missing From The Debate
Authored by Eric Schreiber, via GoldSilverWorlds blog,
The Swiss will vote on a referendum on November 30th that would ban the Swiss National Bank (SNB) from selling current and future gold reserves, repatriate foreign stored gold holdings to Switzerland, and mandate that gold must comprise a minimum of 20% of central bank assets. The SNB does not usually comment on political referendums. However, in this case it has done so quite vocally.
Why has the central bank decided to step into the political fray and oppose this initiative? What are its concerns? Are they valid or motivated by other factors?
The SNB’s primary objections to the gold initiative are three fold.
1) It claims that gold is “one of the most volatile and riskiest investments”,
2) that a 20% gold requirement will lower the “distributions to the confederation and the cantons” since gold does not pay interest like bonds and dividend paying stocks, and
3) that the 20% gold holding requirement will interfere with its ability to conduct monetary policy and complicate efforts to maintain “the minimum exchange rate”, the “temporary” policy of pegging the Swiss franc (CHF) to the Euro (EUR) it initiated in 2011 and continues to enforce to this day.
The first two concerns can quickly be addressed and discounted. Gold is indeed a volatile asset at times but so are bonds and equities. In recent years Greek, Spanish, Italian, Irish and other European bonds have been far more volatile than gold. The SMI, the Swiss stock index, lost over 50% of its value on two separate occasions between 2000 and 2009 while gold steadily rose at an annual rate of 8.50% over the same period.
Regarding the second concern, the distribution of proceeds derived from financial speculation and paid to the confederation and cantons, one has to question whether or not it is really appropriate for the SNB to re-brand itself as a hedge fund instead of remaining focused on its core responsibilities as a central bank.
To properly address the third SNB concern requires a historical context and a more detailed analysis. Prior to the change in the Swiss constitution, the CHF was backed by a minimum amount of 40% gold. Despite this constraint, Swiss monetary policy at the SNB was unhindered and functioned properly during the post World War II period. The SNB is correct in implying that today a partial gold backing, as required by the referendum, would make its policy of weakening the CHF against the EUR more difficult. Although the SNB has raised the currency peg as a reason for voting against the referendum the issue has not been directly addressed by the “YES” camp. Is the peg necessary? Does the population in Switzerland benefit as a whole from a weak EURCHF exchange rate? Why does the SNB feel compelled to continue a policy that it characterized over 3 years ago as “temporary”? How did “the minimum exchange rate” policy come to be? Why hasn’t there been a public debate about it?
The answer to these questions begins with a look back into regional history a little over two decades ago. The Swiss population voted down two separate initiatives, one in 1992 and the other in 2001, to join the European Union (EU). Despite the popular votes, Switzerland was integrated into the EU for all practical purposes although officially it still remains outside the group of member nations. Entry into the EU was initially achieved by political means through a series of bilateral treaties, 10 in total, and then later in 2005 by popular vote in favor of the Schengen agreement. Laws between the EU and Switzerland were harmonized and Swiss border controls with EU member countries were abolished to permit the free flow of people, goods, and services. Unfortunately, Switzerland’s stealth ascension to the EU made a public vote on whether or not to replace the nation’s sovereign currency the CHF with the EUR politically impossible. To circumvent the issue, the SNB decreed on September 6th 2011 that it would enforce a “temporary” peg of 1.20 CHF to the EUR, a policy it refers to as “the minimum exchange rate”, to fend off EUR flows entering the country due to the financial crisis that was engulfing Spain and Greece at the time. The CHF would henceforth be permitted to loose value against the EUR but never to strengthen beyond 1.20. In this manner, monetary policy for Swiss affairs was quietly handed over to the European Central Bank (ECB) while maintaining the mirage of a Swiss sovereign currency before the public. The CHF was transformed overnight into a derivative instrument of the EUR without the ratification or knowledge of the population. The chart below shows the link between the EUR and the CHF derivative instrument since the “temporary” “minimum exchange rate” measure was put in place over 3 years ago. Note how the red line, the CHF, closely tracks the green line the EUR, but always remains a little bit below it (weaker) but never above it (stronger). Why is this policy still in place given the fact that the crisis in Spain and Greece has ended according to the EU?
The conversion of the sovereign Swiss currency into a EUR derivative tracking unit was achieved by the SNB in a four step process:
- the SNB publicly announced in 2011 that it stood ready to print “unlimited quantities of CHF “ and proceeded to print CHF out of thin air
- the SNB sold the newly minted CHF to buy EUR when the EURCHF exchange rate traded below 1.20
- the SNB used the EUR it acquired in step 2 to buy EUR denominated bonds
- the SNB promised Federal and Cantonal politicians the future interest “revenue” from the vast bond stockpile.
Evidence of this process can be seen in the figure below demonstating the dramatic expansion of the SNB balance sheet since the “minimum exchange rate policy” was put into effect. At over 83% of GDP, the Swiss National Bank’s EUR bond purchasing program is in a league of its own when compared to other activist central banks around the world. SNB “assets” have surpassed 520B CHF and keep growing.
By gorging itself on EUR denominated bonds and bloating its balance sheet the SNB has created a significant foreign exchange risk exposure for itself. The SNB cannot meaningfully reduce its holdings and extricate itself from the currency risk it has created without incurring significant losses selling its inventory of EUR bonds at a rate below the 1.20 level. China, a country that has pegged its currency to the USD for decades, finds itself in a similar predicament. It is unable to sell its massive inventory of USD holdings without putting pressure on its own peg as well. However the Chinese and the Swiss situation differs in one very important manner. China is a net exporter of goods and services to the US. Chinese losses on the import side of the trade balance are more than offset by gains on the export side of the trade balance. This has been one of the key elements of China’s growth strategy since the 1990s. Chinese policy makers systematically undervalue their currency to provide an artificial boost for their exports. Switzerland on the other hand is a chronic net importer of goods and services from the EU and thus does not have the offsetting EU exports in sufficient quantity to compensate for the damage the peg inflicts on its domestic purchasing power.
Thus, the SNB “minimum exchange rate” policy impoverishes the domestic Swiss population by increasing the price of all EU imports purchased in Switzerland. This is perhaps the most egregious and certainly least publicized effect of the SNB action. Each time a Swiss resident purchases a good or service in Switzerland made in the EU, he or she is rendered poorer by the actions of his or her own national bank.
The problem of central bank overreach is certainly not isolated to Switzerland. Since the financial crisis 6 years ago, central banks around the world have interfered in and manipulated bond, foreign exchange, and equity markets on an unprecedented scale. These unelected institutions have actively redistributed wealth from one group to another and compete against one another to adjust the purchasing power of their national currency downwards relative to other nations without the knowledge of their populations. For over 3 years the SNB has been operating opaquely behind the scenes substituting another currency for its own, converted its citizen’s savings into EUR, and imposing a stealth tax on European imports without public consent.
A “YES” vote for the gold referendum is a first step towards redressing the imbalance that exists between the SNB and the people of Switzerland. A “YES” vote will begin a process to restore restraint, accountability, and transparency on an institution that took advantage of the removal of its previous gold holding constraint already once before to explode its balance sheet, reinvent itself as a hedge fund, and significantly expand into areas of policy far beyond its original remit. Central banks should be lenders of last resort and systemic regulators. In a direct democracy, decisions regarding taxation, membership in trade / political unions, and the autonomy of the national currency should be determined by popular vote not decreed or circumvented by central bank edict.
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David Morgan says if this swiss referendum on gold passes, gold will automatically jump up and beyond $2,000 on it's way to $5,000 an oz.
https://www.youtube.com/watch?v=zn-Cab0XRlw
Then it won't be allowed to pass, assuming the Swiss PTB are as corrupt as those in The Land of the Free.™
There will be NO reaction.
The Swiss, seriously, ????
Gold will continue to drop as the USD is the "cleanest dirty shirt".
I'm surprised to find such an idiotic comment connected to such an elegant screen name.
IF it passes. I'm a gold bull (I've been long since early 2000s, gold at $330) but not counting chickens etc.
DavidC
I take it David Morgan has never heard of the trillion dollar coin solution...
Using or implying "automatically" would imply he's a rather low grade PM pimp.
BS.
1. First it has to pass.
2. Then TPTB in Switzerland have to be unable to find any higher level judge who declares the rules which are to be implemented illegal, or at least issues a "temporary" injunction against them.
3. The politicians and the SNB can still simply ignore the referendum outcome, and then it's on the Swiss people to try to judicially enforce compliance.
Pass? Fat frckin chance.. as if TPTB will let them happen.... fat frckin chance...
A bird in hand, or two in the bush?
whats missing in the debate is todays spike to $1467 then collapse back to $1200
there may be a new floor in gold but there sure as fuck aint no ceiling
GS calls for $850/oz gold.
How've they been doing so far ???
"gold is “one of the most volatile and riskiest investments,"
First off, since when are Central Banks charged with "investing" anything? They're a bank that regulates the money supply. Period It has nothing to do with "investing".
Also, I know it really sucks when you have to hold such a volatile asset. One whose true value is highest when the shit hits the fan. Who in their right mind would want to hold something like that?
Point #2 is ridiculous unless you buy into the false central bank "investing" thesis.
Point #3 is ridiculous when you consider that China has bought HUNDREDS OF TONS of the stuff and their exchange rate hasn't moved at all. Admittedly its pegged to the dollar, but there's been no significant pressure against that peg via alternate channels.
NoDebt,
I'm with you, but the same central banks that admit to buying stocks?
DavidC
"He who counts the votes decides everything" -some Georgian
Georgian Carlin?
Welcome to Carlingrad.
Didn't Obama say that right before every election of which he's been a part?
Jimmy Carter?
Except that 1) SNB fiat currency reserves are primarily divided between largely USD and EUR, and 2) Switzerland is also a net exporter, and 3) fiat money in fungible...
Exporter maybe, but where do the raw materials come from to make the things that are exported? Cocoa? Titanium? Uranium? etc
Germany. That's why there is a trade imbalance with the EU (on paper). Switzerland is landlocked, and the logistics infrastructure is geared towards goods arriving via northern European ports to importers and wholesalers and then being transported via river, train and truck to Switzerland. It would be almost impossible to run a trade surplus with the EU since while worldwide exports can be done "directly" (on paper) worldwide imports cannot (without unnecessary duplication of companies that would focus solely on the Swiss market). The article reads like it was written by an undergraduate economics student with no experience in actual European trade or business.
One other thing to note (which also demonstartes how little Europe actually produces anymore) -- tiny Swtwerland with only 8 million people is the 4th largest EU trading partner (pop. 500 million). We may be rich and hard working, but not to that degree. So in addition to bankrupting both SNB and at least 3 EU member states financial sectors (and central banks), rapid appreciation of CHF also has serious consequences to REAL goods and services trade both in Switzerland and the EU.
So if they come in via Germany, then I am correct in saying the RM's of CH exporters come mostly from outside of CH, so CH exporters are indeed often adversely affected by a weak CHF ?
CHF price primarily affects the cost of value addition within Switzerland, since both imports and exports are usually priced in either USD or EUR (the product itself is often more of a driver than the origin or destination). A high CHF just makes Swiss products more expensive than they already are, which often pushes the limits of what additional pricing power a reputation for "quality" can provide.
Edit- I feel like I'm having the exact same conversation in two different threads (ZH in STEREO!)
A yes vote will ensure that the pretty Swiss misses remain pretty Swiss misses for eternity. Silky flaxen gold hair, big blue eyes, husky mountain voices, strong hands to do laundry on the rocks in the fresh cold glacial waters, strong arms to sweep the wooden plank floors, strong backs to tend to Elsie in the green flowered pastures, gulping in the fresh mountain air, strong vision to sight in the sniping rifles to keep the fucking Frogs on their side the border. Strong legs to carry the buckets of fresh cold mountain water to the brewery for the wonderful Swiss beer and schnapps. Strong backs to stand at butcher blocks for hours dicing up the small cute little murdered veal for the grand cuisine in cream sauces made from fresh unpasteurized Elsie's milk.
That and stopping immigration.
And all the gold you can fondle.
Vote Yes. Support Your Local Lac Lucerne Navy
Those chicks are hot. If you disagree you either hate beer goodness or are some kind of homo.
~"A yes vote will ensure that the pretty Swiss misses remain pretty Swiss misses for eternity."~
Yodel-lay-hee-hooo!
Vote Yes!
Gold is not a volatile fucking asset. Fiat is volatile fucking paper with its constant printing. Gold has been and always will be a constant. The system has been broken so long that people think that unlimited paper printing is the norm and everything should be measured against it.
i kinda agree with you but gold is not exactly a constant - and im not talking relative to fiat.
At certain times in history gold can become less scarce or more scarce, such as in gold rushes, or in industrialisation of the mining industry. Should the icecaps melt, perhaps there will be a new gold rush in antarctica, siberia, alaska and/ or greenland - this will diminish scarcity, more physical made available to the market
All the Gold mined through history is what 900,000,000 ounces. So there is an ounce for every eight humans on earth. That is pretty fucking scarce and the only way that ratio is going to change very fast is a lot less humans. Gold is pretty fucking constant, head count is the wild card brother.
the problem is, where are they going to get the gold?
Some third-world country who's evil dictator was recently "removed" from power by the USGOV
They can get the gold from this leprechaun
https://www.youtube.com/watch?v=D-Rt56n-vC4
If it passes, I would expect a few other nations to follow.
Kind of nice the Netherland disclosure happened before the vote.
http://www.globalresearch.ca/122-tons-of-gold-secretly-repatriated-to-th...
lol David Morgan. Him and Peter Schiff are the metallic versions of Cramer. I'll probably die before any of these fools say it's a bad time to buy silver, it's a bad time to buy gold, it's a bad time to buy stocks.
A reasonably good investor looks for opportunity. Buy stocks when the economy is expected to improve. Buy bonds when you expect deflation (aka market crash). Buy metal when you expect inflation. Don't just buy one thing and say it's always the right investment. That's a great way to lose everything.
Schiff doesn't say just buy one thing. Thanks for making a false argument.
Don't know much about Morgan except you can have a Morgan without the organ. Sorta like Crisis without ISIS but the head stays attached. You take your side I'll take mine.
Hmm, isn't saying gold is volatile a bit like saying the dollar is volatile. I mean, is gold volatile or is the currency you are meassuuring against volatile. How would you know?
The version of Tyler Durden that wrote this article, knows less about Switzerland and international commerce than Brad Pitt :) ). " However the Chinese and the Swiss situation differs in one very important manner. China is a net exporter of goods and services to the US. Chinese losses on the import side of the trade balance are more than offset by gains on the export side of the trade balance." Well Mr Durden....Switzerland is also a net exporter despite that misleading chart you posted. They have being net exporters for decades. With a few quick exceptions, their current account has being positive for decades. But there is a difference between those two countries. China exports junk to the world. They have to work like ants, and they get payed a "ant" salary. Switzerland exports high quality products so just like Germany they got a better pay for their exports. Now one question remains. Who is this Tyler guy to judge Swiss money policy if he can't even get the facts straight.
Platypus
see TOP of article
Authored by Eric Schreiber, via GoldSilverWorlds blog,
click on link and you get
this article is written by Eric Schreiber, independent asset manager, former head of commodities UBP, former head of precious metals Credit Suisse Zurich. All views expressed are his and may not reflect those of his former employers.
So! The article is still misleading :))......and by the way their disclaimer should say " for entertainment only and very suitable for a CNBC headline"
@platypus. Schreiber's point was that Switzerland is a net importer from the EU and so it is unhelpful to devalue CHF vis a vis Euros. No mention was made of Switzerland's world wide current account. The article was in no way misleading. Get Brad to explain.
Seeing the amount of jammed full shopping bags the Chinese have in their hands when they are in Switzerland, I think Switzerland is a net exporter to China, but perhaps only of Chinese-made goods.
What, you don't think all that tourist tat is made in Switzerland do you?
The Chinese worldwide, make it, sell it, then send other citizens to buy them back with free printed money (converted into CHF at the Swiss banks) plan is still working fine then :=)
Worldwide money laundering bitchez
Once, I had a Swiss babe and have to admit that our pelvic action was pretty volatile.
Price was not a concern to either party of transaction.
how many votes have we seen rigged lately, as if any vote that really mattered would be allowed to go against the establishment, come on guys you all know better than this.
The Scottish can attest to that. The "freedom and democracy" stuff is propaganda.
I was just sorry the calls to arm the moderate Scots were ignored.
the swiss may be an exception - after all, theyve built their historical fortunes on being an exception to the malarky that happens below them in those inferior european countries
Good article. Balanced and it gets into issues. However (and you knew there'd be a however from me) It is when he got into the 'historical context' portion of his article that my interest perked up.
Classic incrementism, the elites favorite technique. They know they probably can't accomplish something on the first pass so they set the hook and let time & their preys thrashing about have it dig in deeper.
The Swiss slowly get intertwined, engrained, subsumed into the EU. The meme goes out that Gold is old school, gold doesn't pay interest or dividends, gold 'restricts' the rulers room to maneuver. If this measure passes it restricts the unchosen rulers ability to control a society.
This referendum might be the last opportunity the Swiss people have to retain their sovereignty.
If I could bet on the outcome I'd place my fiat on a FAIL vote.
The elite have a good record at stopping this sort of rebellion.
The Swiss already lost their sovereignty. There will not be a "yes" vote, unless somehow the SNB can get around the referendum.
Who exactly are the People in Switzerland that are against this Swiss gold vote? I can't, for the life of me, understand how people can be so willing to hand over their thought process to the 'idiot box'.
The average people who do not understand how the central bank system works? Same as allover the rest of the world really.
Who you ask? The entire government, the SNB, the entire Swiss SMS, most economic "analysts" and commentators, ALL political parties from left to right, and many poeple from the economy - Switzerland overall does export more than it imports (but not with the EU, that is correct, it imports more from the EU), so these people profit from the weak CHF, and the Cantons (as mentionend in the article) who get free cash whenever the SNB trades successfully. And a lot of sheople of course who buy this hook, line and sinker. My gut feeling is this will not pass, unfortunately. We'll see soon enough.
I can't see it passing but if it did it would be classed as a non event anyway. In fact if it did pass I could see a paper smash on gold just to say "look, we are still in control".
If this were to happen as predicted and the SNB were prohibited from selling their gold reserves as and when they pleased then expect the price of gold to jump and the CHF currency to appreciate remarkably. These are interesting times
My Swiss GF just sms'd me saying she still isn't sure about the gold vote.....
Seriously, if the GF of a hard-core gold nut votes NO, there is no fucking way this is going to pass.
"Morning Hon, Just doing my votes. To be honest, I am not sure for a yes for the gold. Persuade me tonight!"
Goddamn the power of the MSM is strong.....
Well Quimby, snap to it! "Pursuade" the Swiss miss, damned you! You know, get your ol' pursuader out and show the lil' miss what it's all about! You can do this. We are counting on you! /sarc ;)
No offence, the Swiss are some of the most subservient people on the planet - whatever .gov says, sheeple do.
If you've ever lived in Switzerland or even visited for a little while, you would know exactly what I mean.
We are talking about a nation with a long-standing history of conscription, don't lose sight of that.
Profoundly stupid proposition from people who do not understand the new world order - shiny yellow lead is irrelevant in the global fiat world.
The only things that matter are economic & military power, especially long-range MIRV'd nukes.
The Swiss govt/central bank should just get thousands of lead bars, paint them gold, stack them in a vault deep in a tunnel deep in the mountains, photograph the stash and publish the photos claiming this pile as their gold reserve, then seal the tunnel with explosives.