Swiss Say ‘No’ to Measure Forcing SNB to Acquire More Gold

Updated on
Switzerland Gold Referendum
A ballot box is emptied at a voting center in Zurich, Switzerland today. Swiss voters rejected a referendum requiring their central bank to hold a portion of its assets in gold, a measure its President Thomas Jordan termed an “invitation to speculators” that could have hamstrung the economy. Photographer: Walter Bieri/EPA

Swiss voters rejected a referendum requiring their central bank to hold a portion of its assets in gold, a measure its President Thomas Jordan termed an “invitation to speculators” that could have hamstrung the economy.

The “Save Our Swiss Gold” proposal stipulating the Swiss National Bank hold at least 20 percent of its 520-billion-franc ($540 billion) balance sheet in gold and never sell any bullion was voted down by 77 percent to 23 percent, the government said. Polls had forecast the initiative’s rejection. Two other initiatives on tax privileges for foreign millionaires and immigration limits also were rejected.

SNB policy makers warned repeatedly that the measure, which also required the 30 percent of central bank gold stored in Canada and the U.K. to be repatriated, would have made it harder to keep prices stable and shield the central bank’s cap on the franc of 1.20 per euro. That minimum exchange rate was set three years ago, with the SNB pledging to buy foreign currency in unlimited amounts to defend it.

“The key word is relief, but it’s not a reason to crack the champagne corks yet,” said Janwillem Acket, chief economist at Julius Baer Group Ltd. in Zurich. Due to the rejection, “the SNB has more options and fewer constraints on monetary policy,” he said.

The SNB said in a statement it was “pleased to hear of the outcome.”

ECB Easing

Investors anticipating more easing by the European Central Bank helped push the franc to a 26-month high against the euro earlier this month. ECB President Mario Draghi has explicitly cited government bond-buying as a possible policy tool. That could cause further appreciation pressure on the Swiss currency.

“The result may be interpreted as a vote of confidence for the SNB and thereby strengthen the credibility of the floor,” said Beat Siegenthaler, currency strategist at UBS Group AG in Zurich.

Referendums are a key feature of Switzerland’s system of direct democracy, and are held nationally and at a municipal level several times a year. The gold initiative was launched by a handful of members of the European Union-skeptic Swiss People’s Party SVP. Uneasy about the more than 100 billion euros the SNB holds, they contended their initiative will strengthen - - not weaken -- the central bank’s credibility.

The SNB’s assets have increased by more than a third in the wake of its setting the cap in September 2011 to ward off deflation and a recession amid the euro area’s debt crisis. It currently holds 1,040 tons of gold, or about 8 percent of its assets. The Swiss already have the world’s highest amount of bullion per capita.

Dangerous Measure

However, SNB President Jordan labeled the initiative “dangerous” and his fellow board member Fritz Zurbruegg said accepting the measure meant the room for maneuver “on currency reserves would be dramatically restricted, with negative consequences for the Swiss economy.’

The central bank, based in Bern and Zurich, would have faced a three-year deadline for repatriating its bullion from abroad and five to meet the 20 percent benchmark. Economists surveyed by Bloomberg News in a poll published on Nov. 19 had expected the SNB to maintain its ceiling on the franc into 2017.

‘‘The central bank is free to pursue its policy of a minimum exchange rate,’’ Finance Minister Eveline Widmer-Schlumpf said at a press conference in Bern. The population recognized that ‘‘gold doesn’t have the same meaning as it had 50 or 60 years ago,’’ she said.

Stronger Franc

Some economists questioned whether -- had the gold initiative passed -- the SNB would’ve found itself reinforcing its cap with a negative interest rate on the cash-like deposits commercial banks keep with the central bank, making good on its threat to take further steps ‘‘immediately” if necessary.

“If the euro crisis doesn’t get worse, then the minimum exchange rate will be defendable,” said David Marmet, an economist at Zuercher Kantonalbank. Had the initiative been accepted, “instruments such as negative rates that don’t widen the balance sheet” would have been an option, he said.

The International Monetary Fund said in its annual assessment of the Swiss economy this year that the central bank could enact a negative deposit rate to stem the franc’s rise. The European Central Bank has already taken its deposit rate negative. The SNB currently has no deposit rate.

Luzi Stamm, member of parliament from the SVP and one of the initiators, termed the overwhelming ‘no’ vote “disappointing.”

SNB policy makers estimated they would have needed to buy 70 billion francs worth of gold if the referendum had passed. Some economists estimated the SNB wouldn’t have had to sell euros to meet the requirement, given its dollar holdings. At the end of the third quarter, it held 45 percent of its 460 billion francs of foreign currencies in euros and 29 percent in dollars.

Voter participation was 49 percent, the government said.

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