Crimping the SNB’s “Flexibility†– It is High Time
The Swiss National Bank (which is run by a bunch of Keynesian dunderheads – not too surprising for a central bank, but somewhat surprising for Switzerland) is trying its best to somehow thwart the upcoming referendum on gold. If the referendum is successful, at least 20% of the SNB’s assets would have to be held in gold – and the gold would have to be kept in Switzerland.
Not surprisingly, the central bankers argue that this would “severely crimp their flexibilityâ€, apparently completely unaware of the irony. Crimping the “flexibility†of central bankers is a good thing after all. They are doing enough damage as it is. We actually are not quite sure what they are complaining about, since they will still be able to create money out of thin air in nigh unlimited quantities.
However, if they once again more than double the money supply as they have done since 2008 – inter alia to buy up foreign exchange in order to manipulate the CHF’s exchange rate – they will be forced to buy gold as well to keep the 20% reserve level intact if the referendum succeeds.
Swiss monetary aggregates. Monetary inflation in Switzerland has gone hog-wild since 2008 (note especially the more than doubling of M1 which is roughly equivalent to TMS-1). And yet, the people responsible for this printathon are worried about “deflation†(seriously). It is of course no wonder that these inflationist bureaucrats hate gold – click to enlarge.
Another argument the SNB is forwarding is that it would no longer be able to remit as much “profit†to the government. First of all, if the gold price were to rise, it could actually make quite a big profit (since then it could sell gold at a profit to keep the size of the reserve at 20%). Secondly, a central bank isn’t supposed to be a “profit centerâ€. Officially, its objective is to maintain the purchasing power of the currency it issues, as laughable as it is to make this the official task of what is after all the very engine of inflation.
