Direct democracy is a good thing, even though its outcomes may sometimes beat rationality. Then again, political; decisions in general often defy rationality, and in case of Switzerland it is only much more visible then elsewhere. On November 3oth a new occasion for eccentricity occurs. Spearheaded by the Swiss People’s Party – a strict right wing party – Swiss citizens are about to decide about the fate of the ‘Save Our Swiss Gold’-Initiative that demands three fundamental economic changes: (i) a constitutional duty for the Swiss National Bank to hold a minimum of 20% of its active in gold; (ii) no longer to allow the purchase of Swiss national gold; and (iii) to move all Swiss gold reserves to Switzerland.This is not less then the wet dream of Tea Party members in the US. What may have been seen as an other obscure initiative seems to have found support by Swiss voters. A mid-October poll indicated that 44% of voters are in favour and only 39% are opposed. Whatever the outcome off this referendum will be, it needs to be seen as a further example of a sentiment on the side of vast sectors of the Swiss population that its country is under attack from outside forces that got invited by the political wrongdoing of Swiss actors. Only a few months ago the same party was successful with a referendum that capitalized on the fear of alienation and asked successfully on an restriction of the number of foreigner worker from EU-member states. This did not go well with the EU but obviously made a (small) majority of active Swiss voters happy. The upcoming referendum is in some respects of similar calibre. Its supporters blame the Swiss National bank for its gold sales over the last ten years or so that reduced its overall gold reserves from about 2 600 tons to about 1000 tons. In terms of gold reserves per capita Switzerland still is the number one country in the world.

The plan to introduce a minimum gold holding of 20% of the active of the central bank has no economic rational and built on the prejudice that gold guarantees security in times of trouble. Keeping gold in the country is probably best reflecting the fears of ordinary Swiss citizens. The Swiss Franc is not meant to become -again- a gold currency, and yet the idea that the central bank needs to hold 20% of its active in gold insinuates exactly that gold produces security and trust. Currently, the SNB holds about 7% of its active in gold; in case of a passing of the referendum it would have to buy another 1 800 tons of gold in order to live up to the new rule. This makes gold markets already happy. The real devastating implication of the ‘Gold Rule’ would be felt on the current side, though. Since 2011 the Swiss Franc is tied to the Euro with a minimum exchange rate of SFR 1.20. This mechanisms was introduced in order to avoid a further appreciation of the Swiss Franc that would endanger the price competitiveness of Swiss exporters. No small problem given that the majority of Swiss exports go into the Eurozone. This exchange rate management requires the purchase of Euros with means of Swiss Francs. The more Euros are purchased the more swells the active side of the balance of the central bank. In future this would mean more gold purchases by the Swiss National Bank in order to keep up with the 20% rule. This would end in a turtle-hare-race that can’t be won by the central bank. In other words, the initiative would result in a re-definiotion of the mandate of the central bank. Rather then making the Swiss Franc to a solid currency, the referendum may end up to make the Swiss Franc to a currency with limited value. Sentiments are rarely helpful in those kind of affairs.