On November 30th, voters in Switzerland will head to the polls to vote in
a referendum on gold. On the ballot is a measure to prohibit the Swiss
National Bank (SNB) from further gold sales, to repatriate Swiss-owned gold
to Switzerland, and to mandate that gold make up at least 20 percent of the
SNB's assets. Arising from popular sentiment similar to movements in the
United States, Germany, and the Netherlands, this referendum is an attempt to
bring more oversight and accountability to the SNB, Switzerland's central
bank.
The Swiss referendum is driven by an undercurrent of dissatisfaction with
the conduct not only of Swiss monetary policy, but also of Swiss banking
policy. Switzerland may be a small nation, but it is a nation proud of its
independence and its history of standing up to tyranny. The famous legend of
William Tell embodies the essence of the Swiss national character. But no
tyrannical regime in history has bullied Switzerland as much as the United
States government has in recent years.
The Swiss tradition of bank secrecy is legendary. The reality, however, is
that Swiss bank secrecy is dead. Countries such as the United States have
been unwilling to keep government spending in check, but they are running out
of ways to fund that spending. Further taxation of their populations is
politically difficult, massive issuance of government debt has saturated bond
markets, and so the easy target is smaller countries such as Switzerland
which have gained the reputation of being "tax havens." Remember
that tax haven is just a term for a country that allows people to keep more
of their own money than the US or EU does, and doesn't attempt to plunder
either its citizens or its foreign account-holders. But the past several
years have seen a concerted attempt by the US and EU to crack down on these
smaller countries, using their enormous financial clout to compel them to
hand over account details so that they can extract more tax revenue.
The US has used its court system to extort money from Switzerland, fining
the US subsidiaries of Swiss banks for allegedly sheltering US taxpayers and
allowing them to keep their accounts and earnings hidden from US tax
authorities. EU countries such as Germany have even gone so far as to
purchase account information stolen from Swiss banks by unscrupulous bank
employees. And with the recent implementation of the Foreign Account Tax
Compliance Act (FATCA), Swiss banks will now be forced to divulge to the IRS
all the information they have about customers liable to pay US taxes.
On the monetary policy front, the SNB sold about 60 percent of
Switzerland's gold reserves during the 2000s. The SNB has also in recent
years established a currency peg, with 1.2 Swiss francs equal to one euro.
The peg's effects have already manifested themselves in the form of a growing
real estate bubble, as housing prices have risen dangerously. Given the
action by the European Central Bank (ECB) to engage in further quantitative
easing, the SNB's continuance of this dangerous and foolhardy policy means
that it will continue tying its monetary policy to that of the EU and be
forced to import more inflation into Switzerland.
Just like the US and the EU, Switzerland at the federal level is ruled by
a group of elites who are more concerned with their own status, well-being,
and international reputation than with the good of the country. The gold
referendum, if it is successful, will be a slap in the face to those elites.
The Swiss people appreciate the work their forefathers put into building up
large gold reserves, a respected currency, and a strong, independent banking
system. They do not want to see centuries of struggle squandered by a central
bank. The results of the November referendum may be a bellwether, indicating
just how strong popular movements can be in establishing central bank
accountability and returning gold to a monetary role.
