Switzerland Rejects 'Save Our Swiss Gold' Initiative, In Rebuff to Central Bank Gold Restrictions

The Swiss federal government on Wednesday rejected a right-wing political initiative known as “Save our Swiss gold," which sought to restrict the country’s independent central bank’s ability to sell and control gold, and urged lawmakers to vote down the measure.

The initiative, led by the conservative Swiss People’s Party (SVP), sought to keep Swiss central bank gold holdings to at least 20 percent of assets.

It would have prohibited the central bank from selling any gold, and would have mandated that bank-owned physical gold be held in Switzerland rather than with foreign custodians like New York’s Federal Reserve or the Bank of England, as national gold reserves often are nowadays.

The Swiss federal council recommended that the Swiss parliament reject the initiative unconditionally, arguing that it would restrict the constitutional independence of the Swiss National Bank (SNB).

The requirements interfere with the bank’s monetary policy decisions, making it harder to maintain monetary stability or develop the economy, said the Swiss cabinet.

“The SNB is tasked with ensuring price stability while taking the development of the economy into consideration. There is no connection, however, between price stability and the proportion of gold on the SNB's balance sheet,” said the cabinet in a statement.

Switzerland already holds about 1,040 metric tons of gold in reserves, which the government termed “considerable by international standards.”

But George Milling-Stanley, an advisor to central banks on gold purchases, told International Business Times that some advanced North American and European economies hold up to 75 percent of reserves in gold, with Swizterland below the global average.

Swiss central bankers sold off more than 1,000 tons of gold in the late 1990s, said Milling-Stanley, to reach its current level of almost 10 percent of assets. “They are very unlikely to be interested in reversing course at this point” to double their gold reserves again, he added.

Swiss gold holdings have also inched closer to the global average in the past several years, he said.

In the 1990s, after former U.K. Chancellor Gordon Brown sold masses of gold, there were similar calls for a minimum gold requirement. In Germany recently, some politicians have campaigned against storing German gold reserves abroad, calling for the repatriation of German gold from the Federal Reserve.

Milling-Stanley called the Swiss initiative a long-shot proposal, because any central bank would find such gold requirements “an unacceptable restraint on its business.” Few central banks set a percentage target for their gold reserves, especially since gold prices fluctuate, he added.

Central banks have been net buyers of gold since 2010, as emerging economies buy gold to diversify foreign exchange holdings.

Gold bulls are a little less convinced about the motivations of the Swiss government, however.

“If the central bank is holding gold, they’re strengthening the currency, the Swiss franc,” said Scott Carter, CEO of precious metals seller Lear Capital. “A strengthening currency puts pressure domestically on economies. So it’s very logical that the elected officials would not want the Swiss central bank to strengthen the Swiss franc, to make it difficult to export its products.”

The Swiss cabinet rejected that argument and added that gold’s price swings this year have made it a risky asset, taken alone.

“Gold has not played a direct role in the stability of currencies for quite some time now,” the cabinet said in its statement. “Taken alone, however, gold is one of the most volatile and therefore riskiest investments on the SNB's balance sheet.”

Since gold doesn’t generate interest or dividend payments, and since the bank couldn’t sell the gold, it would gain little from holding gold, said the Swiss government. That would lead to less profits to the Swiss Confederation and its cantons.

Switzerland has kept its gold holdings virtually unchanged since at least 2009, according to International Monetary Fund data. The Swiss central bank held 499 billion Swiss francs ($544 billion) in assets in 2012, with more than 400 billion francs in foreign exchange reserves.