The Swiss government is urging voters to reject a popular initiative to ban the Swiss National Bank (SNB) from selling any of its gold reserves, a step the cabinet said would hinder the bank’s ability to shape monetary policy.
The proposal, dubbed “Save our Swiss gold,” was brought about by the right-wing Swiss People’s Party. The SVP 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 proposal would force the Swiss National Bank to hold at least 20% of its assets in gold.
The organizers of the initiative, dubbed “Save Our Swiss Gold,” said a percentage of physical gold and a gold-backed currency are principles which should be followed by both the SNB and other central banks.
In a statement after a cabinet meeting on Wednesday, the government recommended rejecting the proposal.
“Acceptance of the initiative would restrict the ability of the SNB to act,” the cabinet said in a statement. Such limitations would make it “more difficult for the central bank to pursue a monetary policy that ensures price stability and contributes to the stable development of the economy.”
It also would impede such SNB policies as its limit on the value of the franc, the government said. The franc was capped at 1.20 to the euro in 2011 as the value of the safe-haven currency soared, making Swiss exports too expensive and potentially fuelling deflation.
SNB Chairman Thomas Jordan warned earlier this year that the SVP’s proposal was “counter-productive” and would hamper its ability to conduct monetary policy.
The SVP members have criticized the SNB’s sale of 1,550 metric tons of gold between 2000 and 2008 as part of a global deal between central banks to reduce their holdings of the metal. Since 2008, the SNB’s gold reserves have been unchanged at 1,040 tons, which at the end of September were valued at just over 40 billion Swiss francs ($43.9 billion).
Gold makes up slightly less than 10% of its total assets. Switzerland’s reserves of gold compare with more than 8,134 tons in the U.S., 3,391 tons in Germany and 2,452 tons in Italy, according to World Gold Council data from August 2013.
Currently more than 70% of the SNB’s gold is housed at undisclosed locations in Switzerland. Around 20% is held at the Bank of England and about 10% at Canada’s central bank.
Although the SVP gathered the 100,000 signatures needed to force a referendum on the issue, a popular vote on the proposal may be years off. Parliament must first decide whether to back or reject the proposal. It is unlikely to win majority backing, after a similar attempt failed in parliament.