Swiss Vote Cliff Notes: The New Gold Standard Debate – Part 2

Read Part 1 This is a two part article. Part 1 was released on Wednesday November 26, 2014.

This has been the main motivation of the “Save our Swiss Gold” referendum. Proponents of the upcoming vote claim that the SNB does not have the right to sell “the people’s gold.” Passage of the measure would prohibit the central bank from peddling any more of the country’s remaining reserves, require the immediate repatriation of all of its foreign gold holdings, and force the SNB to maintain 20% of its official reserves in solid gold. The initiative is in part a reaction to the zero interest rate policies taking hold around the globe, the growing instability of fiat currencies, and a veiled attempt to bring more accountability and oversight to the Swiss National Bank.

Switzerland’s economic independence from the US and the European Union has always been a source of pride for this very precise and prudent nation and in the minds of many, the IMF has now tied them to the recklessness of the West. Like other fiat currencies, the purchasing power of the Swiss franc has dramatically withered and the Swiss have joined the ranks of the fiscally unruly by holding debased, paper money.

The “Save our Swiss Gold” vote not only seeks to restore monetary value but to mandate a new level of discipline within the central banking system. If approved, the referendum would require the SNB to purchase 1500 tons of gold over the next five years, boosting Swiss reserves from about 8 percent to 20 percent of the country’s total assets. It would also increase transparency and give “the people” a window into the SNB’s internal operations with respect to its gold imports, exports and overall physical reserves.

There has been active campaigning on both sides of the vote with advocates touting the merits of solid money … while those against it warn of a dangerous disruption to the currency system. The political opposition is well-funded and has mounted a powerful “No” campaign featuring the head of the Swiss Bank warning that passage could limit the bank’s ability to manage the money supply and throw the Swiss economy into crisis.

The vote has directly pitted the advocates of gold-backed currency against the speculators of fiat wealth. Those that favor the referendum tend to be the working class Swiss who want a more stable franc as opposed to the wealthier stock manipulators who fear a stronger currency would cut exports and reduce the value of their paper holdings. Clearly a “Yes” vote would boost gold demand and support higher gold prices but the very dialogue itself has reignited an important debate about fiscal prudence that has been lost in these times of QE infinity.

While the referendum appears to have waning support, the lessons of the “vote” should not be lost. Governments will never voluntarily opt for a stable, unfluctuating currency or seek out their own gold standard. The primary role of central banks in a fiat system is to manipulate money and manhandle valuations. It is left to us then, the private citizens … to secure our investments, safe guard our portfolios, and reduce the volatility of our future by holding our own supply and stash of physical gold.

This is a two part article. Part 1 was released on Wednesday November 26, 2014.

Once again Scott Carter, my associate from Lear Capital has helped to craft a well written, well researched article. Scott is one of the leading advisors and authorities in the precious metals market. Lear Capital is a specialist in gold and silver investments.