This page has been archived and commenting is disabled.
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.
>>> Check Out Our Latest Gold Report!
Sprout Money offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies from Sprout Money are transformed into the Gold & Silver Report and the Technology Report.
Follow us on Twitter @SproutMoney
»
- advertisements -
I don't disagree, but I have to note that you are using a different concept of sovereignty, imho a romantic one that is part of an insular past of the US behind high tariff walls
It wasn't my definition of sovereignty to begin with, I simply accepted the gauntlet thrown. My thesis has always been that monopoly is the root of monetary evil, and from that root springs debt currency, interest rates and their manipulation, legal tender laws, and a lot of other dependent and consequent evils.
The closest anyone here has ever come to refuting that argument is actually you... when you posted Aldrich's NMC's analysis of the SNB. We must be getting dumber collectively. Although, in a forum filled with goldbugs and PM hustlers I can understand the trepidation or self-loathing some might have to overcome before playing the Aldrich/Federal Reserve card in defense of their own position.
UR, I'm a declared enemy of all things leading to oligarchy, oligopolies, etc. but I do grudgingly accept state monopolies in specific cases
after all, the very notion of the state was born through a monopoly, taking away violence as an appropriate response of the individual whenever he liked
having said that, a state can misuse a monopoly right. and this is the evil I see, together with the concurrent financial oligarchy fed by it
Every case is different. The prescription I came up with for the US certainly wouldn't work as well in the EU. The Eurozone's biggest problem is a common debt-linked currency which is completely unlinked to national budgets and interest rates that are not correlated to actual risk. At the same time I think Switzerland has more options than either the US or the EU. Meanwhile, the necessary steps for the BRICS are in some respects opposite of those for the US, since the latter is in decline with no prospects for serious course correction in the near or intermediate term. The only way I see for the US to preserve its position is to implement relatively radical reform of the monetary system which actually and effectively constrains the private bank monopolies before the US loses the standing to do so, or the system the US spawned can be turned against the US by others.
Actually IS being turned against The US by others, and that can only intensify.
To save itself, from both external AND internal (Ferguson, as not in Turd Ferguson) disaster, The US needs to close its borders and bring jobs home. I am NOT, naturally, a protectionist but the US is the world's largest economy and can call the shots. It won't happen because the Corporations don't want it. Hence Obumboy wants to open the borders to all (Except genuine tourists who just want to spend money and for whom it takles forever to get a Visa?).
So, I guess it will have to collapse before it can get rebuilt.
But how can the US bring jobs home? The US is simply a very unattractive country in which to operate the company. The corporate revenues must exceed the corporate costs, and both the regulatory costs and regulatory uncertainty are very high. The IRS just retroactively outlawed an entire class of health insurance policies and implemented retroactive fines that exceed the average employee's entire compensation. The US is attractive to foreign corporations (as a tax haven) only if they don't have offices or provide jobs in the US - government regulation doesn't get any more ass backwards. Collapse appears to both the most viable and likely option.
I agree that there is an obvious need for Structural reforms in THe US. Tell Congress and The Fed. They are just kicking cans and making no progress.
If US Corporations had no choice but to manufacture in The US again because of closed borders and large tariffs, they WOULD do so becuase, well, they would have no choice.
I agree that if it carries on as is, collpase is indeed the most viable option. And given the totally corrupt and broken US system is, in fact, probably the ONLY option. The only question is, what next? A return to a Constitutional Republic or a Totalitarian State? My money would be on the latter...
Actually, the "Concept" of sovereignty is quite simple. Look it up in a dictionary. I'm pleased that you seem to be taking issue with The US and not, as usual, The UK.
Incidentally, if The US Government was in ANY WAY interested in it's people, it would be creating high tariff walls right now. The world's largest economy can call the shots (Although it would be better if it wasn't BK). That would force manufacturing back to The US, which would push up costs which would push up wages which would push up consumption and get the economy moving again. It would also, of course, push down Corporate margins, which is why it will never happen.
I do try to be factual, and it's not the UK that fosters a popular notion of sovereignty mixed with insularity, an allergy to treaties and mixing it up with hegemony
incidentally, yes, the US is more busy demolishing foreign barriers to trade, as for example with TTIP... together with your UK's gov
I love Blighty and it's Peoples, it's cultures and many other things on The Isles. I just take potshots at it's government's "free trade" notions, or it's role in the EU
you know that your tariff wall proposal is anathema to the general public in both US and UK. globalization has it's proponents, even when they are often blind to it and it's consequences
I live in Bali, Indonesia and am an Indonesian citizen. Indonesia does not assess income tax on overseas earnings and has no Capital Gains tax and no inheritance tax. But that's just coincidental...
"Give me control over a Nation's money supply and I care not who makes the laws"
Rothschild
well, as I wrote before, it's actually three referenda rolled in one. repatriation + asset quota in gold + gold selling ban
I would have preferred the first two alone. the first is ok, the second a radical, dangerous step, but nevertheless feasible in Switzerland's position as near-member of the eurozone. though it risks the very use of the CHF as a currency in it's domestic market
the third? Nixon "did it". can't be seen as a pro-gold move, imho. if you can't use it as money... it stops being money
I identified perhaps a dozen "work arounds" (usually in the form of absurdist reductions) some combination of which would be employed in less extreme forms. At the end of the day- the referendum will not do what either the proponents or establishment will say it does, and the people who are emotionally invested in the outcome will never see the result they desire. However, there are worse alternatives, and if the SNB doesn't get over its elitist and Teutonic inclinations, while simultaneously improving its communication skills and transparency, then there will be another referendum, and another... until the popular demands are met, and real damage is done.
No, but it would contribute to a certaim MOMO?
fully agree. though I seriously don't see this referendum coming through. in fact I'm willing to bet with you a lunch in one of those insanely expensive restaurants at the Bahnhofstrasse of Zurich you mentioned years ago that it won't come through
imo eventually the CBs have to brake this momentum they have built up. this will be the moment that might propel gold back fore and front
I would not wager the CHF pocket change to use one of our quaint, but immaculately cleaned phone booths... that the gold referendum will actually pass this weekend (unless a bookmaker is offering 100,000 to 1). But when you are traveling through Zürich next I certainly would spring for a round of drinks at the Schweizerhof (right at the intersection of Banhofplatz and Banhofstrasse). I have number of trips that I have been postponing so I'm going to be on the road for a couple months after I would otherwise be returning from the Christmas holiday.
Nixon "Did it" to protect the Dollar against those evil speculators. By which he meant the French who had every right under the Bretton Woods system to convert their Dollars to Gold on demand. SO what you actually mean is "Reneging"?
Now here comes Marine Le Pen (Or was that Jack the knife?). But again, the French are a little too late. The Dutch got their 122 Tonnes (As a reward for surpressing the MH017 investigation), The Germans got stiffed for cozying up to the Russians, or perhaps therer was some really juicy stuff on Angela's Mobile..And, of course, there IS NO MORE GOLD. It's all in China.
And that is, of course, what has the Western CB's losing sleep. If physical Gold demand starts picking up again in the West, there is no way that Gold can be sources (China and India alone sre absorbing more than toyal world production ex-China and Russia) so prices would skyrocket. And Switzerland's requirement to buy a minimum of 1500 Tonnes wouldn't help.
And, as for Switzerland entering the EU, yes, Luxembourg appears to have more flexibility to cut sweet tax deals to launder offshore earnings for MNC Corporations from WITHIN the EU and without The IRS crawling all over them. But, of course, their ex-President who signed off on most of those deals is now the (Unelected) President of The EU, so I do imagine that the other (Also unelected) EU "Leaders" will cut him some slack? Modern politics in action...