Swiss National Bank President Thomas Jordan took to a church pulpit to warn voters that passing an initiative requiring the central bank to hold a fixed portion of its assets in gold risked harming the economy.
“The initiative is dangerous because it would weaken the SNB,” he said Sunday, speaking at a location on a historic hill in the town of Uster, Switzerland. It “would make it considerably harder for us to intervene with determination in a crisis situation and fulfill our stability mandate,” he said.
Switzerland holds a national referendum on Nov. 30 that would require the SNB to hold at least 20 percent of its assets in gold, up from 8 percent currently, and never sell any. A plurality of voters oppose the measure “Save Our Swiss Gold,” though a sizable portion of them were still undecided, a poll published last week showed.
Proponents of the initiative, which would also require repatriation of SNB bullion held in Canada and the U.K., contend boosting the central bank’s gold holdings would help preserve national wealth. They are skeptical about the euro purchases made by the SNB to defend its three-year-old cap of 1.20 per euro on the franc. The SNB’s interventions have caused its balance sheet to expand by more than a third.
Sight-deposits of domestic banks at the SNB rose last week, data showed today, in a sign the central bank may have intervened to defend cap. The SNB, which had previously said it hadn’t had to buy currency to defend the ceiling since September 2012, declined to comment.
Room for Maneuver
Jordan, speaking from what he described as a “lofty pulpit,” said the gold initiative would prove detrimental to national economic well-being by making it harder for the central bank to maintain stable prices.
It “would very greatly restrict our monetary policy room for maneuver, since the SNB only retains its full capacity to act when it is in a position to adjust its balance sheet to monetary policy requirement,” Jordan said.
With 1,040 metric tons, Switzerland is already the seventh-largest holder of gold by country, International Monetary Fund data show. The SNB estimates it would have to buy 70 billion francs ($72 billion) of gold, should the initiative pass. The measure stipulates it would have five years to make those acquisitions to meet the 20 percent threshold.
© Copyright 2023 Bloomberg News. All rights reserved.