On Sunday, the people of Switzerland will go to the voting booth to decide their nation’s economic future. The “Swiss gold vote,” as it’s being called, would require that the nation put its currency back onto a gold standard, which would require the Swiss central bank to buy large amounts of gold from the global market in order to put their currency on a gold-based standard.
The Swiss gold vote will have historic implications whether the citizens of Switzerland vote yes or no this weekend. This referendum is a measure that sets requirements for the Swiss National Bank (SNB) with the following rules, according to Business Insider:
- The SNB cannot sell its gold reserves.
- Gold reserves must be stored physically in Switzerland.
- At least 20 percent of the bank’s assets must be held in gold.
On the second point, says BI, only about 70 percent of the Swiss gold is in Switzerland and only about 8 percent of the SNB’s assets are in gold. The vote would change that and would require that the bank sell off other reserves, mostly foreign currencies such as the U.S. Dollar, in order to trade them for gold.
Both BI and the Wall Street Journal agree that if the Swiss gold vote is positive, the franc could see a rise in the value, which could trigger deflationary issues for Switzerland. This would severely affect the nation’s economy, which relies heavily on exports that would become too costly against the Euro if the franc’s value rose too much. Some are suggesting that the SNB drop interest rates into the negative to counter this.
So how much of the shiny stuff would the Swiss gold vote mean the country would have to buy to get to that 20 percent point? About 1,650 tons of it, according to U.S. News & World Report.
Bloomberg reports that though the current polls are showing that the Swiss gold vote is not going to get a yes this weekend, there is a large enough contingent of undecided voters in the polls that it could swing the other way. Many citizens in Switzerland have been building personal reserves, says CNBC, despite the “6,000 year bubble” warning of Citi economist Willem Buiter. The Citi economics believes that central banks should not hold gold at all.
“No central bank should hold any gold reserves, in our view.”
Commodities, including gold, have been on a downturn over the past several days, with oil, gold, and others in a dip. The Swiss gold vote could change that fate for gold, however, but the requirement to buy could also create what Market Watch calls an “OPEC Moment” for gold. This would be the effect of sellers taking advantage of the Swiss requirement to purchase gold through the vote and then of the SNB itself holding vast gold reserves, similar to the oil reserves of the Middle East.
It’s also noted by Forbes that the current gold price is likely in expectation of a “no” tally on the Swiss gold vote this weekend.
This weekend will see a historic moment as the Swiss gold vote is cast. Either way, it will have implications that reach globally.