This morning the final votes were cast on the Swiss Gold Initiative (most votes were submitted via post). As we speak the final votes are still being counted however we already know: The initiative has been rejected!
- The majority of votes of most individual cantons (some cantons’ votes are yet to be released) were against the initiative. As Switzerland has a federalist structure, this by itself already means that the initiative has been rejected.
- Public votes are still not final, but indications show that about 25% of the population voted for the initiative.
If the initiative would have passed, the Swiss National Bank would have been required to hold at least 20% of its balance sheet in gold. This demand was denounced by the mainstream media as a “radical” step that would massively restrict the central bank’s actions, although not that long ago, the constitution required a 40% backing of the Franc with gold. The referendum also called for a ban on the central bank to sell gold and requested the repatriation of all gold reserves held outside of Switzerland. To me, the latter request was one of the key elements of the Gold Initiative. An essential feature of gold is that it entails no counter-party risk. Therefore, if the gold, the only means of payment in a harsh crisis scenario, of a sovereign nation is held in another country, it pretty much defies the point of holding gold.
Although a part of me was optimistic, I have to say that I expected this outcome of the initiative, which was ridiculed in all newspapers and on TV by all political parties and the “independent” central bank among other interest groups. One could hardly read anything positive in the press about this initiative. The view in favor of this initiative was not represented in the media. One could even argue it was suppressed in all public debates. Guido Hülsmann, Professor of economics at the University of Angers in France, put it in the following words:
“Unfortunately, at the last moment the Swiss became victims of propaganda initiated by the state, the Swiss Central Bank and the commercial banks, which was actively supported by the media.
The immense effort that was conducted is no surprise. For those concerned with the referendum, billions of Francs were at stake. For the time being, the Swiss Central Bank can continue conducting its business as usual, which entails a lack of freedom for its citizens.”
A dear friend of mine, Lukas Reimann, Member of the National Council of Switzerland, was one of the creators of the initiative. As a realist he knew that the initiative barely had any chance to pass. When I talked to him earlier, he had the following to say:
“The rejection of the referendum comes as no surprise. All parties and syndicates that had the support of the press were against the initiative. However, the result should not be regarded as a “carte blanche” for the politicians or the Central Bank to squander more of the gold reserves, which belong to the people of Switzerland, and then to buy even more Euros. This would increase our dependency on the European community and compromise our stability.”
I totally agree with Lukas. The vote of the Swiss people is definitely not a “carte blanche”. On the contrary, it shows that a part of the population is not content with the management of the Swiss Franc. I think this fact in itself could have a positive impact on the policy of our central bank to become more prudent when it comes to monetary expansion. Though the media campaign was against the initiative, it raised questions on the matter of gold vs. fiat money. The public has become more aware that gold reflects wealth and value. This is crucial! Jeff Deist, President of the Ludwig von Mises Institute, confirms our view in this regard:
“First and foremost the Swiss people should be commended for holding this historic referendum, which represented an attempt to reclaim monetary sovereignty from the European central banking class. The Swiss National Bank regularly held 40% gold reserves less than ten years ago, so the narrative used to defeat the referendum– that it was somehow “radical” or would unduly limit central bank actions– clearly was false.
As economist Murray Rothbard stated, “The existence of gold in the economy is a constant reminder of the poor quality of the government paper, and it always poses a threat to replace the paper as the country’s money.” Given the choice– in effect– of having the Swiss Franc backed by more gold or more Euros, the referendum showed that many Swiss wisely prefer gold.
The referendum demonstrated that many Swiss still want independence from Europe and a strong currency at home. More importantly, it demonstrated that many Swiss want no part of the Euro, which is nothing more than a centrally-imposed political project masquerading as a currency.”
One thing we should not forget is that even if the initiative had passed, it wouldn’t have posed a massive constraint on the actions of the central bank, as they could still have continued to inflate their balance sheet. The only difference would be that 20% would have had to be held in gold. I just talked to Philipp Bagus, Professor of Economics at the Universidad Rey Juan Carlos in Madrid, who had the following to say:
“It would have been a step in the right direction, but it would not have been enough anyway. We need more bold steps to prevent credit expansion, business cycles and stop the financing of the state by the printing press.”
I agree that it wouldn’t have been enough; however one step in the right direction is better than none at all. As a Swiss citizen, I voted “Yes” for the initiative on a rainy October afternoon when I was filling out the voting papers and explaining my “Yes” choice to my two teenage children. Even with the rejection of the initiative I believe that our efforts were not in vain! This initiative started a debate, a debate not only about gold, but about the nature of money itself and monetary management in general. Lutzi Stamm, Member of the National Council of Switzerland and co-creator of the initiative described this as follows:
“It is unfortunate that the Swiss people have not taken the opportunity to set limitations on the Central Bank, but I hope that the discussion on our initiative has made a small contribution to question the policies of central banks around the world.”
The initiative has failed to pass, but I believe we are still winners in this race. The pro-initiative figure clearly shows that the public’s distrust against government and central banks is growing and that more and more people will start questioning the actual system and centralized government. It is a starting point in the quest towards self-determination and individual liberty. But we still have a long way to go.
More articles by Claudio Grass.