SWISS-VOTE/GOLD Swiss gold initiative could have "dramatic consequences" for the economy, economist warns

Record ID: 328383

  • Title: SWISS-VOTE/GOLD Swiss gold initiative could have "dramatic consequences" for the economy, economist warns
  • Date: 28th November 2014
  • Summary: BERN, SWITZERLAND (NOVEMBER 23, 2014) (REUTERS) CITY VIEW EXTERIOR OF HEADQUARTERS OF SWISS NATIONAL BANK (SNB) SIGN FOR SWISS NATIONAL BANK ON BUILDING
  • Embargoed: 13th December 2014 12:00
  • Keywords:
  • Location: Switzerland
  • Country: Switzerland
  • Topics: General
  • Reuters ID: LVAEFY5FAK7P4MZXLEEAVUIENNON
  • Story Text: As the Swiss gear up to go to the polls on Sunday (November 30) to vote on a proposal that would force the central bank to boost its gold reserves, the initiative would harm the functioning of the Central Bank and the economy, an economist said.
    The Nov. 30 vote, called by the right-wing Swiss People's Party (SVP), is aimed at preventing the Swiss National Bank (SNB) from offloading its gold holdings. It would also require the central bank to bring back gold parked abroad and to hold at least 20 percent of its assets in gold, compared with 7.8 percent last month.
    Higher gold holdings would escalate costs for the SNB and impair its ability to intervene freely in the currency market.
    At a public speech at a church in Uster, near Zurich, last weekend, chairman of the SNB, Thomas Jordan said the initiative is dangerous because it would weaken the SNB.
    Jordan said the terms of the initiative could hamper the SNB's efforts to implement its minimum exchange rate at 1.20 francs per euro, currently one of its central policy tools.
    The SNB stepped up its campaign against the proposal in past few weeks and Cedric Tille, economics professor and member of the SNB's board of directors warned of the consequences of a 'yes' vote.
    "It's a very bad initiative because it restricts the Central Bank's ability to do its job, and in a crisis like the one we have, the Central Bank has been at the front line very heavily so and has done a very good job in fighting the crisis, but also more generally in delivering its legislative mandate of price stability. If we look at the data, price stability is working in Switzerland, so we have a system that works well, and this initiative would put sand in the wheels and can have dramatic consequences," said Tille.
    If adopted, the SVP's "Save our Swiss gold" initiative would force the SNB to buy gold for each euro it purchases to weaken the franc, making its interventions much more expensive.
    "What is very striking and worrying is this fascination for gold. When you talk to people about gold, they don't talk about gold like any other asset. At some point, it's a bit like a cult. You have turns of phrases that are more like a religious speaking, and it's viewed as something that is good in and by itself," Tille said.
    For Swiss MP from the Democratic Union of the Centre and member of the Swiss gold initiative committee, Yves Nidegger, it is more than necessary for the SNB to recreate its gold reserve. He said that in the early 2000s, the SNB lost billions of dollars selling half its gold at the worst price.
    "There can be a crisis on euro. Basically, in the past, we had gold on the assets side of the balance sheet and Swiss Francs on the liabilities side. Today, we have euro, on the assets side, and the Swiss Francs on the liability side. In other words, euro has replaced gold. I'm not sure that euro is stronger than gold in the long term," Nidegger said.
    Support among Swiss voters for the initiative has slipped to 38 percent, an opinion poll showed last week, falling short of the majority backing it needs to become law. Support in a survey conducted last month was 44 percent.
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