Swiss Gold Measure Goes Down Big Time

The “Save Our Swiss Gold” referendum in Switzerland was voted down in Sunday’s election.

It wasn’t even close.

The grassroots measure requiring the Swiss central bank to hold 20 percent of its reserve in gold was rejected by more than 3 out of 4 voters.

Had the initiative prevailed, the Swiss National Bank would have had to buy 1,500 metric tons of gold for its reserves over the next five years. It also would have had to demand the return of Swiss gold held by foreign central banks.

Having gold to back paper money is no longer as important as it once was, Switzerland’s finance minister insisted. The head of the Swiss National Bank said the measure was “dangerous.”

Swiss voters overwhelmingly rejected three citizen-backed proposals to protect the country’s wealth by investing in gold.

Of course that’s what they said. Governments and central banks hate the discipline gold imposes on them.

Fifteen years ago, when the European common currency was launched, the Swiss people wisely rejected the opportunity to be part of it. That was then.

Now with the voters turning thumbs down on the weekend’s referendum, instead of gold, the Swiss reserves will continue to be held in paper currencies like the euro.

Long a paragon of good economic sense and a neutral nation even in the last century’s European bloodbaths, Switzerland had a 40 percent statutory backing of gold until 2000. It wasn’t quite as good as outright convertibility, but it was better than virtually every other country because the measure provided discipline to the Swiss government, which couldn’t just print money like the rest of the world.

But by 2011, Switzerland opted to be just another combatant in the coming global currency wars. It now prints Swiss francs to buy euro debt.

The major news media never flag nor do they faint in their mission to represent the views of the governing classes. One wire-service headline reported that Swiss voters had rejected a plan to “hoard” gold. They should have reported that Switzerland can now hoard the bonds of euro-zone sovereign debtors instead.

Switzerland remains a beautiful country, one with many virtues. But it isn’t the monetary exemplar that it once was.

What country will replace it?

If any one does, it will probably be in Asia. That is where the gold is going.

As for the Anglosphere and the Western European countries, perhaps they have had things too good for too long. Maybe it is evidence of Goethe’s saying that people can endure anything except continued prosperity. Or maybe it is just the natural rhythm of life, the way summer gives way to fall and fall to winter, or the way yin becomes yang and yang becomes yin.

Whatever the hypothesis for the dynamic, the Swiss vote fits a larger pattern.

It fits with the refusal of the American people to hold their central bankers accountable and demand an audit of the Fed.

It fits with Americans’ tolerance of punitive taxation of their gold investments.

The West’s dishoarding of gold is part of the same pattern. The U.S. Treasury Department’s gold auctions of the 1970s were designed to get as little return as possible for Americans’ gold.

Equally deranged was U.K. Chancellor of the Exchequer and later Prime Minister Gordon Brown’s decision to sell 395 tons of British gold at the bottom of the market in 1999-2002 for an average price of $275 an ounce.

Similarly, the Swiss central bank was also inspired to sell about half its gold during the same period.

The promoters of the Swiss initiative wanted to prevent boneheaded moves like that in the future. But the Swiss central bankers fought the measure desperately, much as the U.S. Fed fought Ron Paul’s audit legislation.

It is clear that the affinity of the Western world for sound money and free markets has been weakened if not severed. This has been apparent in the U.S. for some time, but with their long tradition of monetary propriety, the Swiss have often been thought of as the last man standing.

Now, with Sunday’s vote, Swiss capitulation to the fiat money madness must be seen as complete.

In much of Asia, however, the dynamic has been quite otherwise. China’s economy has been becoming more free (and accordingly more prosperous) since the reformer Deng Xiaoping kicked open the door more than a generation ago.

India, too, has made progress shedding its socialist somnolence.

They rank No. 1 and No. 2 in the acquisition of gold.

We are on quite different trajectories. One leads to prosperity.

One does not.

Which do you think is which?

Best wishes,

Charles Goyette