Swiss voting whether to go back to gold based currency

[Benko]

http://www.breitbart.com/Big-Peace/2014 ... t-Heard-Of

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On November 30th, Swiss voters will go to the polls to reassert their historical position of backing their country’s currency with gold.  Info is here:

http://gold-initiative.ch/ which is german but google translate says it is already in english

If approved, the “Save Our Swiss Gold”? initiative will force three very uncomfortable mandates on the Swiss National Bank and the rest of the Fiat world.

    The Swiss National Bank will NOT have the right to sell its gold reserves.
    The Swiss National Bank must hold at LEAST 20% of its total assets in gold.
    The gold of the Swiss National Bank must be stored PHYSICALLY in Switzerland.

For the outsiders, the real fun will come in the next few weeks while we watch these same Swiss government officials try to explain why restoring a sound currency, that served them very well for hundreds of years, is now a very bad idea
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[Reub]

I hope that it passes to serve as an example for other countries. If this does pass and Switzerland is forced to buy and hold a latge amount of gold,  could this be the catalyst that starts the price of gold rising?

[WiseOne]

Maybe!

Not to mention that something very interesting will happen to PRPFX, with all those Swiss francs it's holding.  I assume that the franc will be uncoupled to the Euro if this initiative passes.

[moda0306]

I love natural experiments in economics... this should be fun to observe, no matter what your current opinion is on the mater of hard vs fiat currencies.

[Tortoise]

Even if the Swiss go back to a gold-backed currency, how will that make a big difference in the rest of the world? The Swiss used a gold-backed currency before, and it didn't stop the rest of the world from going fiat. It's a tiny country with a tiny population and a tiny economy.

[Ad Orientem]

Unless I misread the actual proposition, the author seems to misunderstand what's going on. I believe the referendum has nothing to do with backing the Franc with gold. But rather specifies that a certain percentage of foreign currency reserves need to be held in the form of gold. That's a long jump from a gold standard.

[Benko]

Unless I misread the actual proposition, the author seems to misunderstand what's going on. I believe the referendum has nothing to do with backing the Franc with gold. But rather specifies that a certain percentage of foreign currency reserves need to be held in the form of gold. That's a long jump from a gold standard.

Dang,  if you use bing to translate, it looks like you are correct.  No habla Deutsch to watch the videos and check.

[MachineGhost]

I hope that it passes to serve as an example for other countries. If this does pass and Switzerland is forced to buy and hold a latge amount of gold,  could this be the catalyst that starts the price of gold rising?

You nailed it!

But it could be a fake out.  Bottoms are formed with people throwing in the towel, so maybe the referendum NOT passing would actually be the catalyst.

If the referendum passes, the SNB will have to buy about $60 billion worth of gold in Swiss Francs to get up to 20%.

[img width=700]http://i61.tinypic.com/f0nqlx.png[/img]

Patience is a virture.

[dragoncar]

If the referendum passes, the SNB will have to buy about $60 billion worth of gold in Swiss Francs to get up to 20%.

The most interesting thing is what it will really cost to buy the gold -- shouldn't the cost of gold in Francs go down as their gold holdings increase?  In the edge case where they commit to buying 100% in gold, it should barely "cost" them anything, as the Franc should strengthen to the price of gold..... right?

[Ad Orientem]

If the referendum passes, the SNB will have to buy about $60 billion worth of gold in Swiss Francs to get up to 20%.

The most interesting thing is what it will really cost to buy the gold -- shouldn't the cost of gold in Francs go down as their gold holdings increase?  In the edge case where they commit to buying 100% in gold, it should barely "cost" them anything, as the Franc should strengthen to the price of gold..... right?

Why would this happen? As I noted above, the Swiss are not voting to back the Franc with Gold. This is about foreign currency reserves at the central bank.

[dragoncar]

If the referendum passes, the SNB will have to buy about $60 billion worth of gold in Swiss Francs to get up to 20%.

The most interesting thing is what it will really cost to buy the gold -- shouldn't the cost of gold in Francs go down as their gold holdings increase?  In the edge case where they commit to buying 100% in gold, it should barely "cost" them anything, as the Franc should strengthen to the price of gold..... right?

Why would this happen? As I noted above, the Swiss are not voting to back the Franc with Gold. This is about foreign currency reserves at the central bank.

I suspect they think it will happen -- otherwise what is their motivation for increasing reserves?

[Ad Orientem]

The most interesting thing is what it will really cost to buy the gold -- shouldn't the cost of gold in Francs go down as their gold holdings increase?  In the edge case where they commit to buying 100% in gold, it should barely "cost" them anything, as the Franc should strengthen to the price of gold..... right?

Why would this happen? As I noted above, the Swiss are not voting to back the Franc with Gold. This is about foreign currency reserves at the central bank.

I suspect they think it will happen -- otherwise what is their motivation for increasing reserves?

As far as I can tell the referendum is being pushed by a far right political party. Last I heard it was trailing rather badly in polls.

[MachineGhost]

As far as I can tell the referendum is being pushed by a far right political party. Last I heard it was trailing rather badly in polls.

Interesting.  What was the rationale for selling off the gold reserves circa 2001?  Switzerland doesn't strike me as a statist welfare state where they would have needed fiat spending.

[Libertarian666]

Maybe!

Not to mention that something very interesting will happen to PRPFX, with all those Swiss francs it's holding.  I assume that the franc will be uncoupled to the Euro if this initiative passes.

I can't imagine how they could keep the CHF coupled to the Euro if it passes.
I have quite a lot of CHF in my portfolio, so I'd obviously be happy to see it pass just for that reason, but also because it would be a poke in the eye to the "pure" fiat paper money crowd.

[MachineGhost]

The central bank can just sell off its US and Euro currency reserves to get up to 20%; there's no gold buying needed.

[clacy]

This measure was voted down convincingly

[Ad Orientem]

This measure was voted down convincingly

Thank God. Everyone was fixating on the requirement to hold 20% of the central banks reserves in gold. But they ignored the killer clause. The referendum prohibited the central bank from ever selling any of its gold. That's insane. When you start with 20% in gold, but can never sell any, that means that overtime you are going to wind up with gold constituting more and more of your reserves with no ability to do anything with it.

It was an idiotic proposal, as anyone except the most fanatical gold bugs could see. I would have voted against it first thing in the morning and twice after lunch.

[MachineGhost]

Now maybe the bottom will be in after the capitulation selling.

The vote was 22% for, 78% against.