Posted On Monday, Dec 08, 2014
The end of last month marked the end of a hope that would have initiated a process of bringing fiat money on a sound footing. The Swiss lost the chance to create history with what could have been a big blow to the reckless money printing policies followed by central banks across the globe. The Swiss voted against the Gold Referendum proposal, of backing the Swiss currency partially with gold, on 30 November, 2014.
The referendum originated from the popular `Save our Swiss Gold` initiative that sought to mandate that gold make up at least 20 percent of the country`s central bank Swiss National Bank (SNB)`s assets, prohibit it from further gold sales, and to repatriate gold owned by the government but held in different countries back to Switzerland.
The outcome of the referendum
The decision has not come as a surprise because while early polls gave the “yes” camp a surprising lead, subsequent polling showed a marked shift in public opinion, and cautioned the initiative’s rejection. But what’s surprising is the fact that a humungous 77 percent of Swiss voters chose not to oblige the country’s central bank to boost its gold holdings. What’s more appalling is that the voter participation was a measly 49% and not a single Swiss region voted to pass the initiative.
The reason for failure
This campaign was up against a well organised and well funded coalition of the main political parties and the central bank; so it carried a high probability of failure. The Swiss media and banking sector were more aligned with the SNB’s arguments against it.. However, there was a hope that that the referendum brings the first positive monetary changes in decades. It would have reintroduced a link between gold and banking, and acted as a barrier to currency debasement.
You see, there is a key flaw in our system of floating currencies. Every financial asset is someone else’s liability. When a currency moves, one will gain and the other will lose. For example, large appreciation in the currency will hurt exporters as well as banks that have lended outside the country. That’s why the Swiss National Bank (SNB) currently doesn’t allow the Euro to fall below 1.2 Francs as the banks have lended in Euros with liabilities set in Francs. To maintain this currency peg, the central bank sells Francs and buys Euros. There is no limit to this deliberate Franc devaluation, which robs Swiss savers, investors, and businesses.
More to it than the Swiss Gold Vote
Although, the Swiss gold initiative failed this time around, there seems to be more legs to the gold movement globally.
Gold repatriation has become a popular initiative in Europe on the back of fears over a new crisis in the global economy, as debt levels are growing in world’s largest economies. The Netherlands has moved 122 tons of gold from New York, and similar demands are now being made in France. Last year, Germany asked to have 680 tons of gold repatriated. Surging mistrust in the Euro during Europe’s debt crisis led a campaign to bring Germany’s entire $141 billion gold reserve home from New York and London. Now, after politics shifted in Chancellor Angela Merkel’s coalition, the government has concluded that stashing half its bullion abroad is prudent after all.
Will the Swiss regret?
With central banks in Russia, China and other creditor nations continuing to diversify into gold and adding to their gold reserves, and with countries such as the Netherlands, France and Germany beginning to repatriate their existing gold reserves there may come a point in the next few years when the Swiss will look back at this referendum and wonder whether it was a lost opportunity to reverse the debasement of the once highly respected currency. On a broader scale, even more important than the gold repatriation requests may be the realization that the fractional reserve fiat money system is coming to an end. It was never sustainable and had propped up only by illusion created by central banks. As it falls apart, there will be a scramble for tangible assets whose values cannot be debased overnight by central banks.
Data Source: Bloomberg, World Gold Council
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