Gold initiative would hamper policy, Swiss government says

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By Catherine Bosley
Bloomberg News
Tuesday, October 7, 2014

http://www.bloomberg.com/news/2014-10-07/swiss-gold-initiative-would-ham...

ZURICH, Switzerland -- Asking the Swiss National Bank to hold a fixed portion of its assets in gold would hinder monetary policy, the government said today.

On Nov. 30 Switzerland will vote on the initiative "Save Our Swiss Gold," which would force the central bank to hold at least 20 percent of its assets in gold. It would also forbid the sale of any such holdings and require all the gold be held in Switzerland.

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"A rigid and unsaleable minimum gold holding would make it difficult for the SNB to fulfill its mandate to ensure price stability and to contribute to the stable development of the economy," Finance Minister Eveline Widmer-Schlumpf said at a press briefing in Bern today. Both parliament and the government have already recommended that voters reject the initiative. Opinion polls will be published this month.

The SNB's balance sheet ballooned in the wake of the currency interventions it waged to defend the minimum exchange rate of 1.20 per euro set in 2011. The SNB held foreign-exchange reserves of 462.2 billion francs ($481 billion) at the end of September, with total assets of about 522 billion francs.

Initiatives are a key element of Switzerland's direct democracy. The gold initiative was started by several members of the Swiss People's Party (SVP), who collected the requisite 100,000 signatures for the measure.

SNB President Thomas Jordan has on several occasions urged its rejection, saying it would make it difficult to fulfill the institution's mandate for price stability.

"The initiative has the potential to limit the central bank's ability to act," he told Frankfurter Allgemeine Zeitung in an Oct. 1 interview.

According to Beat Siegenthaler, currency strategist at UBS AG in Zurich, the SNB would be forced to buy about 1,500 tons of gold over five years to meet the required 20 percent threshold. As of the end of June, the central bank, based in Zurich and Bern, owned 1,040 tons of the precious metal.

Its gold holdings have made the SNB dependent on market developments. It was forced to scrap its dividend and its annual payment to the government and the cantons last year after it suffered a 9.1 billion-franc loss after the price of gold experienced its biggest plunge since 1981.

"The initiative demands that the central bank engages in an investment adventure," Peter Hegglin, who heads the conference of finance director of the Swiss cantons, said at the Bern press briefing. "A gold supply that can't be touched isn't an emergency supply."

The SNB said in April 2013 that about 20 percent of its gold was with the Bank of England and 10 percent at the Bank of Canada, with the remainder stored in Switzerland.


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