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Economic Issues: Swiss Gold Referendum


This research explores the Swiss Gold Referendum as a contemporary economic issue that may have both domestic and global impacts. Swiss Gold Referendum is a controversial issue that requires voters to decide.

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The proponents of the Swiss Gold Referendum want the Swiss not to give away their gold. Traditionally, the Swiss National Bank (SNB) has always held large gold reserves, nearly 2,590 tons. However, the SNB has sold 1,550 tons of gold at significantly lower prices relative to the market prevailing prices.

The Swiss are trying to defend their economic independence from the Eurozone. This makes sense because by protecting the Swiss franc against the euro, the SNB has imposed the euro on Swiss. This implies that the country is moving closer to joining the Union against the wishes of many Swiss. Also, many Swiss have noted that it is not the role of a nonpartisan institution like the SNB to define and impose economic policies with significant political consequences.

The Swiss Government, however, has opposed the Referendum and its initiatives. From the government point of view, the SNB must be flexible to execute its policies. Also, the government had argued based on the losses it “incurred when the price of gold declined in the year 2013” (Merk, 2014).

Review of Situational Analysis

The Referendum requires the following initiatives. First, there would be no further sales of gold by the Swiss National Bank (SNB). Second, the country must store all its gold in Switzerland (“Save our Swiss Gold”, 2014).

Finally, the SBN must maintain not less than “20 percent of its total assets in the form of gold” (“Save our Swiss Gold”, 2014). To achieve these initiatives through transitional measures, the country has two years to send back its gold stored abroad and five years to ensure that it meets the minimum reserve requirement of 20%.

The Swiss Gold Referendum is a courageous move by the Swiss People’s Party (SVP) and other interest groups to restore the role of the international Gold Standard. The Referendum is a struggle against the actions of the leading banks in the country. That is, Swiss want to enhance more oversight, transparency, and accountability based on the actions of the SNB (Paul, 2014).

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The Swiss Government claims that the Referendum will erode the independence of the SNB and erode its abilities to implement policies if the initiatives are endorsed (Merk, 2014). The SNB must drive the government’s policies. Therefore, it should not surprise anyone that the Swiss government has opposed any potential initiatives that would restrict operations of the SNB. Such restrictions may not necessarily jeopardize operations of the institution, but rather limit the flexibility that the institution has.

It is imperative to understand whether gold is a risk to Switzerland. According to the Swiss Government, the year 2013 presented a risk when the price of gold sharply dropped, which led to serious losses for the SNB. Although the Swiss Government has turned these initiatives into polemics, it is imperative to understand facts about the SNB. First, the SNB bought its gold reserve at relatively lower rates.

Thus, if any gold was sold, then there were no losses incurred, but rather large profits were realized. Second, the Swiss Government had embarked on ‘printing’ more money to protect the value of Swiss franc against the euro. The Swiss National Bank has purchased “the US dollar and euro-denominated securities, an act which has truly introduced massive currency risk” (Merk, 2014).

The government maintains that the SNB should be flexible and be able to dispose of its gold during a crisis when it has over-leveraged. However, the SNB will provide liquidity to overcome such challenges. If it faces insolvency, then the SNB may bring new capital through selling gold (Merk, 2014).

This would spread and socialize the country’s losses. In this case, the government will have to rescue the bank perhaps by sacrificing depositors. Therefore, to protect depositors, the SNB must have prudent policies, which require that individuals who take such risks bear responsibilities for their actions and losses.

Gold, however, is citizen’s money, and it does not belong to the government. Therefore, the country will “back franc with gold and it would represent franc” (Merk, 2014). This implies that the government does not have any rights to give or sell old at will. Hence, the Referendum wants to restrict the SNB on the selling of gold, not kept in other countries and sustain the value of the franc.

The 20% minimum requirement is a major challenge to the initiative. However, the requirement that the SNB will never sell the gold will result in complex outcomes for the country. For instance, the initiative requires the SNB to back at least 20% of its assets by gold, but the global price of gold may drop.

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As a countermeasure, the SNB must buy more gold to protect its assets. As such, the national bank’ gold will exceed 20% as set by the initiative. It could even reach 100% as market dynamics change over time. The SNB will have more gold in reserve that it cannot sell to be a bailout any financial institution during a crisis. The initiative completely prohibits it from such actions.

The government maintains that a “strong currency is a source of concern for exporters” (Merk, 2014).

There is a problem with this Referendum. The national bank has a balance sheet of 83 percent against the GDP. It has restricted any possible appreciation of the Swiss franc beyond “1.2 against the euro and it controls any potential deflation” (Evans-Pritchard, 2014). Since the year 2011, the SNB had embarked on aggressive protection of its currency against the fluctuating exchange rate and had printed money necessary for such actions.

At one point, the bank focused on reducing nearly half of its sovereign bond issuance within the Eurozone every month. This action led the Standard & Poor to conclude that the SNB was fueling the Eurozone debt crisis by providing a gateway for capital to other countries.

Consequently, the SNB now has “a balance sheet of 522 billion francs (£345 billion) with only 7.5 percent of this is in gold, some 1,040 metric tons” (Evans-Pritchard, 2014). Therefore, the SNB will have to buy “1,733 tons of gold to reach the 20 percent target mandate by 2019 if the vote passes” (Evans-Pritchard, 2014).

Switzerland has often conducted many referendums and voters have become contented with the system. Consequently, voter turnout has traditionally been lower than expected. If this happens, then it could favor the yes vote for the initiatives. In addition, citizens care about their independence and therefore do not want to be a part of the European Union. This situation may force Swiss to vote for the initiative to avoid much association with Europe.

The Referendum, however, will face several challenges because of the government and the SNB efforts to scuttle it away. They claim that Referendum would limit the SNB abilities to implement policies, ensure price stability and promote economic developments.

Potential Impacts of the Referendum

There are two possible outcomes in the case of the Swiss Gold Referendum of 30 November 2014. These are yes and no outcomes, which would have different impacts domestically and globally.

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If the initiatives are successful, then Swiss may expect the following consequences, at least according to the “Save our Swiss Gold” (2014).

  • The country shall stay strong, independent and not swayed by the US or the EU
  • The Swiss franc will be backed by gold
  • The currency would be stable and result in a stronger economy
  • The SNB will no longer be able to sell or keep gold outside the country and billions of paper money for bailouts.

On the other hand, if the Referendum fails, “Save our Swiss Gold” (2014) claims that the consequences could be grave for the country.

  • The EU and the US will dictate the country’s economic policies
  • The currency would be tied to a weak euro and the union
  • Other countries will hold Swiss gold
  • Cost of living and inflation will rise significantly
  • The SNB will continue to ‘print’ more money
  • The value of Swiss franc will decline and result in a weak economy
  • The country will hold billions of EU bonds that could depreciate in value

Analysts believe that gold price will rise significantly if Swiss voters pass the initiatives to control the SNP and keep at least 20 percent of its assets in the form of gold (Bachmann, 2014). Investors, however, have not been “too bullish about the Swiss Gold Referendum because the prices of gold have merely risen by less than five percent in the past few weeks” (Bachmann, 2014).

Still, the Referendum vote could set new standards for policymakers and business communities in Switzerland. One fundamental concept is that the bank must stock gold; it will not be ab; le to sell. This would affect its ability to set and implement monetary policies and respond fast to prevailing conditions in the market. In other words, the SNB will not easily be able to “print billions of Swiss franc, deflate the value of the currency and peg the rate of exchange against the euro” (Bachmann, 2014).

The SNB argued that such reactions are necessary to cushion the economy against the European debt crisis and promote exports to the EU markets. However, the supporters of the initiatives have been critical about such actions. They argue that “To peg Swiss franc with a weak currency such as the euro and a weak economic area like the Eurozone” is a recipe for disaster” (Bachmann, 2014).

Proponents of the Referendum claim that backing up the Swiss franc with the gold reserves would ensure that the “currency stays strong and protect the economy against potential financial crises” (Bachmann, 2014).

Other critics claim that it would be risky for Swiss voters to approve any to regulations that mandate increased and unmovable gold reserves. This would affect the currency market and the country’s economy. It would force the SNB to review its monetary policies on purchasing an unlimited number of foreign currencies to support its current pegged rate of 1.2 francs against the euro. As such, the country will have to remove the current cap, which will lead to a stronger franc and by extension, a burden to many traders and exporters.

On the other hand, some analysts have noted that overall changes on franc because of the Referendum would not be dramatic. Most likely, the SNB could introduce negative interest rates to a means of weakening a strong franc.

The Referendum initiative also has critical potential impacts on the global market. The SNB will not have the freedom to ‘print’ more money because the currency would be backed by gold (Harvey & Nag, 2014). That is, the market would have less liquidity, which could result in its failure.

Still, others have claimed that outcomes that favor the Referendum vote would not necessarily result in high bullion prices given that the Referendum is most likely to pass. The SNB has five years to implement the new regulations and therefore it could spread the purchasing of the gold, review its transactions off the market or rely on derivatives to protect gold prices from such impacts (Harvey & Nag, 2014).


The Swiss Gold Referendum could have significant ramifications if voters pass it. On the other hand, the status quo will continue if it fails. The Swiss have noted that the yes vote could give them an opportunity to control the SNB, ensure transparency and limits its activities with the EU and the euro. The SNB would not have the flexibility to print more money and implement preferred government policies.

A successful Referendum could result in high global gold prices, weaker Swiss franc if the cap is lifted and a weaker currency market if there is low liquidity. Conversely, the effect could be less dramatic if the government spread the buying of gold and cushion the currency against potential impacts.


“Save our Swiss Gold”. (2014). Web.

Bachmann, H. (2014). Gold prices may surge if Swiss vote on reserves passes. USA TODAY. 

Evans-Pritchard, A. (2014). Swiss vote provokes ‘6,000-year gold bubble’ attack. The Telegraph. Web.

Harvey, J., & Nag, A. (2014). ‘Yes’ vote in Swiss referendum not certain to lift gold prices-Deutsche Bank. Reuters. Web.

Merk, A. (2014). Switzerland: Vote Yes on Gold Initiative. Web.

Paul, R. (2014). All Eyes on the Swiss Gold Referendum. Daily Reckoning. Web.

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