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The Real Reason Why The Swiss National Bank Hates The Gold Referendum
Switzerland seems to be in the eye of a storm lately, as several indications have resulted in a code red situation. The Swiss Franc is trading at its highest level versus the Euro since 2011 when the central bank had to intervene in the forex market to safeguard its purchasing power.
The EUR/CHF exchange rate is vital for the Swiss economy, and the Swiss National Bank needs to keep a very close eye on this exchange rate as (unfortunately for Switzerland), the CHF is still widely being considered as a safe haven. Back in 2011 the fear for the collapse of the Eurozone was absolutely real and investors were scrambling to get their hands on Swiss Francs in a flight to safety.
Source: Yahoo Finance
This obviously resulted in a sharp increase of the value of the Swiss Franc and in just six weeks time, the currency appreciation was roughly 10% which has led to the Swiss National Bank’s extraordinary measures as it pledged it would do everything it could to defend the EUR/CHF exchange rate of 1.20. And indeed, even though several market parties continued to attack this fixed exchange rate, the central bank didn’t move its stance and poured billions and billions of newly printed Swiss Francs into the system. Why? Because it desperately needed to protect its exports as the more expensive goods such as Swiss watches were becoming pricier at a very fast pace.
Just to give you an idea of how important this exchange rate is for the Swiss National Bank, in 2012 the country had to buy $188B worth of foreign currency to support the targeted exchange ratio, which is roughly 1/3rd of the GDP that year. A quick look at the balance sheet of the SNB shows that the central bank is indeed doing everything it can to protect the exchange rate. As of at the end of 2010, the total value of the balance sheet was ‘just’ 270 billion Swiss Francs but by the end of 2012 this had already grown to 500 billion Swiss Francs. If you’d have thought that once the Eurozone was ‘saved’ the pressure on the CHF would go down is terribly wrong. The SNB’s balance sheet continued to expand, and as of at the end of September the total value of the balance sheet was 522 billion CHF. This means that the pressure on the Swiss National Bank is ongoing.
And that’s exactly the reason why the SNB is attacking the gold proposal in the upcoming referendum. The situation of the balance sheet was quite alarming as of at the end of September, as the ratio gold/total balance sheet was just 7.66%. The proposal calls for a minimum of 20% of the reserves being held in gold, which would mean that the SNB would have to purchase 55 million ounces (!!) of physical gold in the market.
But that’s not the only problem. As soon as the Swiss Franc would move to be a gold-backed currency, the demand for CHF as a safe haven currency would increase even further. This means that the balance sheet would continue to expand and it would definitely reasonable to see the balance sheet double once again (because let’s be honest, who wouldn’t want to gain exposure to a currency being backed by gold). And that’s the big problem. If we’d assume a further balance sheet expansion, the balance sheet of the SNB would be much larger than the GDP of the entire country. And if 20% of a 1000B USD balance sheet would have to be backed by gold, the Swiss National Bank would have to buy an amazing amount of 129 million ounces of gold. Good luck finding that amount of physical gold.
And that’s exactly why our financial system is sick. And it’s not just the flu, it’s an ebola-like disease. The Swiss National Bank is against the gold proposal, but not just because it would undermine the flexibility of the SNB, but because it would be a total disaster for the country. The Dutch Central Bank has announced it repatriated its gold to increase the confidence in the central bank once again, but if the Swiss Franc would become a gold-backed currency, the Swiss economy would take a deep nosedive. That’s why the SNB doesn’t want its currency to become more attractive and why it’s opposed to the re-introduce the gold standard. The financial system has passed its point of no return.
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All the easy answers are behind them. The first one to take their medicine will be the first one to recover. Better to be first than last.
Men lose their minds rapidly, in great numbers, and only recover their sanity slowly, one individual at a time.
Same rules for private and state banks.
Surely the easy answer is simply to sell paper gold and use the money to buy metal gold.
How hard can that be?
Assuming the paper gold market is honest.
And it does NOT matter what the price of gold is as long as paper gold and metal gold are the same.
The swiss abdicated their safe haven position when they pegged to the EURO...
There are northern european countries that have passed them in that regard.
The only problem with this post is.... it is completely wrong.
Would the Swiss currency appreciate if it were tied to gold? Yes.
Would the Swiss economy "nosedive" as a result? No.
Would Swiss exports become more expensive to those of us who have BS money (fiat)? Yes.
WOULD IMPORTS INTO SWITZERLAND BECOME LESS EXPENSIVE FOR THE SWISS? YES. YES. YES.
If the entire economy of Switzerland depends on its exports, the economy would change. Temporarily. But in fact, wealth would accumulate MASSIVELY and RAPIDLY in Switzerland, because EVERYBODY would want to hold Swiss francs.
Quit being a shill for the banksters, Sprout.
An accountable gold based currency system would destroy both the corporate welfare and free shit voter army states.
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.
They shoild just get 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.
To be taken seriously you will need to address issues seriously. Ignorant mockers are regarded with contempt in mature counsels.
Exactly right, with the sole exception-----and it's a deal killer-----that "maturity" is nearly always mistaken for a buncha fat guys with excessive nose, and ear hair, women that look like men.
I have yet to meet a truly mature man or woman in this world, in my time, on this little blue ball.
Where are these mythical creatures?
If they resumed the gold backing of their currency, then each Swiss citizen's purchasing power would rise just as quickly. Yes, it would temporarily put a strain on their exporters but those exporters are being supported NOW by devaluing the currency and robbing every Swiss citizen who lives within their means. It's a matter of putting the responsibility back on the appropriate party. That's what gold does!
<<Yes, it would temporarily put a strain on their exporters>>
But let's not forget that the very large exporters and employers, especially in Switzerland, do not hesitate one second relocating the best part of the workload in low-wages countries. So the rate of the Swiss franc is irrelevant in all those cases, because they pay their slaves in ...you name it.
UBS announced just that with 4000 jobs in the IT area (1) And nobody among those employers does give a flying crap about the consequences on the Swiss workers. The fact that it's the same group of people that warns against the consequences of the referendum on the exporters is just pathetic.
And would the SNB be ready to throw all Switzerland's real reserves down the tube if the value of the euro decreased to poop equivalent ? Just for the sake of staying compatible with EU ? Pathetic.
(1) In French : http://www.bilan.ch/entreprises/ubs-veut-delocaliser-4000-emplois-inform...
Working people's purchasing power is direclty correlated to their income (wages) from their job.
And how about savings? Do not play a role in your considerations? How telling.
I measure my gold savings in kg and I measure my gold investments in kg. But I am an exceptional case.
Do you know what the difference is between savings and investment?
I would guess you are simply underwater on a gold investment, and looking to be bailed out at the expense of those who don't even have the luxury of savings. Either that or you don't understand macroeconomics.
"I would guess you are simply underwater on a gold investment, and looking to be bailed out at the expense of those who don't even have the luxury of savings. " Either that or you don't understand macroeconomics.
Some more wild guesses? You attitude leave me kind of speechless. I've seldom see so much stupidity and arrogance in just a few sentences. Why should my gold investments be under water? And where do you get the idea from I expect a bail-out ? The only one having no understanding about quite a few things, does not look to be me. But go on you exceptional case. Do you investing without any savings. Coiuld it be that you are a central banker? Then of course you can invest without capital. But otherwise ...
Looking at the time stamp of you most recent posts, when you posted this response, you had already red my other other response, so since you are constructing pointless straw men - you are a LIAR (and possibly also an IDIOT). At least if you were underwater would have the defense of talking your own book.
Oh sorry, you are even more stupid than I thoughgt you are. I'm sorry, to question you exceptional state. And I admire you being able to invest without having saved before. You must be the miracle man. Maybe you should consider that I'm sitting in a complete different time zone? Ah no that's just to normal and I give all the compliements back to you.... But I add a littel small thing. Showing that kind of ignorance to basic facts it really exceptional.
How can be one just to full of oneself and be that ignorant at the same time?
Perhaps the little untermenschen should read, and apply reason, so he might learn from his intellecual superiors, who actually have experience in the mattters being discussed.
I stated very clearly, "Working people's purchasing power is directly correlated to their income (wages) from their job."
Furthermore, in regards to: "If they resumed the gold backing of their currency, then each Swiss citizen's purchasing power would rise just as quickly. Yes, it would temporarily put a strain on their exporters but those exporters are being supported NOW by devaluing the currency and robbing every Swiss citizen who lives within their means."
I can prove:
1) everyone's purchasing power would not rise just as quickly as the currency appreciates
2) that the strains are NOT temporary, but rather structural
3) that the current policy of currency devaluation is NOT robbing every Swiss citizen who lives within their means of their purchasing power
Moreover:
The ignorance of the contextual application (i.e the referendum in Switzerland, and the actual economic situation in and of Switzerland) of theories that people read in books on the interwebz makes most of the discussion of the referendum meaningless. The SNB was pulling a "Helicopter Ben" and handing money out to big business prior to devaluation when the pure fiat currency was appreciating 30% in six months, guess what- everyone's purchasing power was not rising just as quickly as the pure fiat currency appreciated (NOTE THE VERB, AND THE LACK OF ANY CONDITIONAL TENSE), and also that the current policy is not actually currency devaluation, it is stability which has resulted in a 4% unemployment rate and relatively low inflation. The Referendum does not address, or in any way amend, the SNB's mandate under Article 5 of the National Bank Act. Furthermore, the Referendum does not restore gold "backing" to the CHF, it creates a minimum fixed rate of gold currency reserves to the volume, but since the actual rate is variable as opposed to fixed, it is no different than the current gold "backing" of the CHF except that there would be (five years in the future) is a higher minimum percentage of gold currency backing the CHF.
You can come back with an adult argument and evidencve to support it, or you can go sit at the little kids' table for Thanksgiving (where you appear to belong) - that's your choice, but you are not going to win an argument or anything else here with only ad hominems, and selective disregard of the posts you reply to... except the derision of everyone else here at Fight Club. They already know that I can (often) be an obnoxious jackass, but also that am most often I right, and that I will freely admit when I'm demonstrated wrong and apologize.
working people who are paid in gold are property owners. Working people paid in fiat are debt-holders. At least half the debt in Europe must be destroyed. Work without actual pay is called slavery. The purpose of central banks is to make all people slaves.
And what are people who cannot find work that will pay them either fiat or specie? (aside from hungry, desperate, and more likely to sell themselves into bondage...)
amazing that you get downvotes for this statement. makes you wonder what people think their income comes from. you even specified working people
He completly "forgets" about savings. And savings are the base for everything. Believe it or not.
I didn't forget anything. I just don't see the need the need to include the irrelevant. Savings are not the base for everything. You could argue that a investment (as a subset of savings) is the basis, but investment involves risk, and without the willingness to accept risk, there is nothing (but savings).
And from where does the money for investing comes. Sorry but negletcing the obvious truth is hardly a base for a discussion. And yes Investements does involve risk among it risking one's one money. I propose to read Human Action as a base for the actions of men.
Look below retard. You are obviosly a troll.
I don't have to you disqualified yourself way too impressive.
No you won't, because you CAN'T.
You are WRONG.
And you CANNOT prove you are correct.
I suggest you cry/shout a bit louder. You know the loudest always are right. So you seem to be.
And from where does the money for investing comes. Sorry but negletcing the obvious truth is hardly a base for a discussion. And yes Investements does involve risk among it risking one's one money. I propose to read Human Action as a base for the actions of men.
Gold is religion and cult to some. Jihadi Muslims have their 72 virgins, while Goldbugs have their their quick profit, eternal wealth and price stability. Hatred is powerful and blinding thing and they're both in for a very rude awakening upon reaching the next step.
Or they could just be jealous of the size of my "boating accidents"
But the threat of actual collapse was zero.
depends on the definition of collapse. the threat in the last years was not a catastrophic devaluation or even hyperinflation. the threat was participant countries leaving the EUR, and having a big devaluation, like what so many articles in the media were asking for Greece and it's Drachma
again I have to point out that speculative positions for a further devaluation of the EUR are again at very high levels. lots of money that wants to bet in the FX casino
the strenght of the EUR is in it's domestic market use, particularly the sheer size of the eurozone. but a strong currency is a curse, in a world engaged in competitive devaluations, particularly for a small country
as I wrote above, in a way the Swiss economy is already calculating prices in EUR. remember, price stability is all about price calculation
Switzerland could have a gold-backed currency, and so satisfy the international needs for such a thing. but the unintended consequence could be that Switzerland's real economy would stop using the CHF and switch to the EUR for good, and even tax in EUR
I like gold, I like honest money. but I also know that the real economy does need a stable currency - price stability - above all other things in order to be competitive
last month I was in Zurich, and I had to use a telephone booth (crazy thing all in curved glass, btw). It accepted euros, as all shops, of course
Or as one larger-than-life American once said:
blah blah blah... cross of gold.... blah blah blah
cross of gold...
That "larger-than-life American" was still advocating PM coinage for trade as the Wizard of Ounces with his foldable silky cellulose was still seen as the debt producing deed of ownership by those using it were rightly regarded as being.
US Constitutionally required coinage was still sacrosanct, and rightfully so, imo, but the fight was over a bi-metal system to increase the amount in circulation. Silver has a place in a real world of coinage / trade and not just in fake "face" and "numismatic" valuations, and should be used as a legitimate unit of trade in lieu of debt devices imo.
And is it just me as a person using the English language in the USA, but are the sentence structures like "the SNB doesn’t want its currency to become more attractive and why it’s opposed to the re-introduce the gold standard" seem like the foreign language software translation programs transliterate rather than translate into proper english thought? I'm sure it works for bi or multi language speaking minds, but for English only folks, it remains disconcerting.
Maybe I could make history by waging a campaign preaching against the evils of being hung on a "Cross of English".
jathought
REMEMBER: Who defects first defects better.
I, for myself, I already voted YES. But I feel we could loose on this one.
why not use all them euros to buy gold, without expanding the balance sheet?
exactly that. They must shorten their balance sheet the SNB holds way to much. It's more than double the BIP from Switzerland in comparisan the EZB just holds a quater of the EU BIP. That's way too much "risk" in one balance sheet. They must get rid of the EUR, they should use the EU fast to buy the gold and get the hell out of such an ill balance sheet.
And even for the Swiss there is not just export. There is also import and they can buy more real things in the out-of-CHF countries.
the article gives the answer: "Because it desperately needed to protect its exports as the more expensive goods such as Swiss watches were becoming pricier at a very fast pace."
fact is that Switzerland is a producing, exporting country. fact is that it exports a lot of manufactured goods, particularly chemicals, pharmaceuticals and the very important machine parts industry products to eurozone countries. fact is that in order to compete in those hard markets most of those valuable products are sold in EUR
I myself buy parts from Switzerland, and I get sent pricelists in... EUR
so from the point of view of the export-oriented Swiss producers (and Switzerland is a tiny country, ergo with a small domestic market) the currency war is a matter of either having the CHF floored to the EUR or... going out of business
this article is way better then I expected. it really gives a bit of a glimpse of why small Switzerland is in a Catch 22 situation. sure, it could go back to a gold backed CHF. but it's industries would probably have to either close or switch to the EUR. and don't get me started about tourism
a classic case of bad money driving out good money
note that the EUR itself is a "dragging-it's-feet" participant in this currency war between the mighty dollar and the other major currencies. note that the EUR is a response to the issues of small currrencies to globalization and currency wars
btw, "them euros" are currently recycled in part into... USDs. not only for rebalancing purposes. see how Russia's national bank has to be very careful with it's hoard of dollars in the current FX speculative attack against the Rouble
meanwhile, the speculative positions against the EUR have again reached the second-highest level ever. this kind of heavy guns would shred the 18 currencies that make up the EUR to pieces, literally. this is the reality about our sick FX world situation
Many Swiss products are made with raw materials from outside of Switzerland. Chocolate for example, so a weak franc is going to hurt exporters too, as their RM costs will be made much "higher" by a weaker chf no?
Both imports and exports are usually priced in either USD or EUR, the issue is the cost of the value addition within Switzerland pricing Switzerland out of the market.
Fear not, they will shortly be priced in RMB which will also shortly be implicitly backed by Gold.
Crito, isn't it likely that using euro for gold purchases would push the price of euro in the wrong direction? i.e. the 1.20 red line would be crossed. That would be one massive dump on the euro.
Let's say, I'm the SNB.
People want my CHF, I give them 1.2 CHF for every euro they give me. I can do that any size, to support swiss companies.
I use 25% of the euro I get to buy gold, whatever the price of gold is. I keep the gold in my vaults
If one day you come back and want your euros back versus the CHF I gave you, I change it at 1 euros for every 1.60 CHF you give me (1.2*4/3), which means I keep the gold I bought as profit, for example.
How is that not a great strategy?
The objective is to buy low and sell high. They could use the USD. But regardless the SNB balance sheet will have to grow, unless the perception of Switzerland as a safe haven were completely destroyed (along with the economy). There only 8 million people Switzerland, less than NYC. If the foreigners' ongoing demands for CHF (which they don't even need or use) are not met by central bank printing new currency, then the competition for existing CHF would create a severely deflationary shock to the domestic economy.
The SNB is stuck inside an evil worldwide monetary system (that they helped design and build), it cannot implement "idealized" solutions in a vacuum, or in practice until more systematic international reforms are enacted.
If they print CHF to buy gold, I guaran-freaking-tee that gold will go up, thus enriching the Swiss. SNB doesn't want that.
If they print CHF to buy gold, I guaran-freaking-tee that gold will go up, yhus enriching the Swiss. SNB doesn't want that.
"The objective is to buy low and sell high".
Um, the SNB doesn't actually have a very good record in that respect with either EUR OR Gold, having sold half its Gold reserves at market lows.CHF PPP has tumbled over the same period.
Trust and respect need to be earned so why should anyone trust the SNB?
Something we agree on- the SNB shouldn't be trusted, which is about the only reason I actually do support the referendum.
Jordan should spend some in Hell (or at least Purgatory) for lying from the pulpit, specifically- ... and most seriously outright lying by stating "we are enormously vigilant in ensuring that our gold is stored safely in every respect, both in Switzerland and abroad." Bar Numbers, Audit Dates, and signed Affidavits please... for the entire period that significant Swiss gold reserves have been held abroad, including the period when FRBNY was used for storing Swiss gold (photographic evidence or YouTube videos would also be nice, but I'm pushing here). Even if Jordan had a come-to-Jesus moment the Sunday before the vote, unless the SNB received the access, and performed the due diligence that others were denied (such as BuBa) - then the Swiss People's mistrust is entirely well founded.
http://www.zerohedge.com/news/2014-11-24/swiss-gold-fire-and-smoke-sermo...
We actually agree on smething? I actually don't entirely agree with your prognosis for Jordan. Time in Dante's playground would be far too good for him and he should be strung from one of the fine lamp posts in Bahnhoftstrasse then run over by a tram for good measure. Together with all the other Central Bankers. The crux of the problem IS the (Rothschild) privately controlled Central banks and the debt money system we live in.
Sovereignty cannot exist until the private monopolies over the public money supplies are eliminated. Armed with a private monopoly, the banking syndicates are free to structure the money supply around the net issuance of debt, and both directly and indirectly control interest rates.
(but I repeat myself)