Will the Swiss Gold Initiative Start a Revolution In Europe?

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Luzi Stamm, a member of Swiss Parliament, and a growing number of Swiss citizens are attempting to force the Swiss central bank to halt all sales of current gold reserves, repatriate all gold back home, and to back any further money printing with 20% of gold purchases. 

In a recent interview with Financial Sense Newshour (FSN), Luzi believes that if Switzerland passes this initiative and takes the lead in backing their currency this will lead to a chain reaction in the central banks of other European nations, like Germany and Austria, to do the same.

Here's part of the interview from this weekend's show (click here for full audio):

FSN: Luzi, tell us a little bit about the Swiss Gold Initiative. I know that in the beginning of the last decade Switzerland sold off a considerable amount of its gold, which was rather surprising, because I can remember the last gold bull market in the 70s when we were looking at hard currencies, Switzerland was certainly considered one of them. That's no longer the case today.

Stamm: Everything you've said is totally correct. And Switzerland, from the political system, has the advantage that the population can start a movement. We call it direct democracy. We call it the Swiss initiative. And a small group of politicians and a group of the population launched this initiative to say, "Stop selling gold and keep it in Switzerland," and we try to force our central bank to keep a certain percentage of the assets in gold.

FSN: Let me ask you this: Switzerland for a long time was known for its banking system, its solid currency, its gold—what prompted Switzerland to sell a considerable amount of its gold almost at the bottom of the market?

Stamm: The question of why did Switzerland start selling the gold is a long story. I see that in the 90s, Switzerland suddenly was under pressure: you made some historical mistakes under the Second World War. And there was international pressure on us to sell gold suddenly. And the Swiss central bank had always promised we will not sell gold and suddenly within two or three years this whole attitude changed and, to my surprise, the Swiss National Bank started to sell the gold.

FSN: And this was something that was done without the permission of the people. In other words, they had the ability to do this?

Stamm: That is totally correct. It was not even a political decision in the sense the parliament had a discussion and decided to sell. And certainly the population never said it's okay if you sell gold. So a very small group of people, it was just as we call it national bank, the Swiss central bank, who suddenly decided, okay we are going to sell.

FSN: And, as you know, as Switzerland was selling gold so was the Bank of England. So there was a lot of pressure brought on the gold market had you just waited a couple of years, there would have been substantial gains instead of losses. I want to talk about this initiative and there's three parts of it and, correct me if I'm wrong, the first is that further sales of gold reserves are prohibited—that's number one. Number two, the gold must be stored in Switzerland because part of it is in England and Canada right now. Three, the national bank must store a part of its reserves in gold. In other words, 20% of your currency must be backed with gold reserves. Let me start with number three: if 20% of your currency is backed with gold reserves, would that entail the central bank going into the market and buying more gold?

Stamm: Yes, that would be the result...as the situation is presented today. The third point, which is stressed now is the most complicated one and it is the attempt to force the central bank, if you are printing money like crazy like as, by the way, the Americans do, as the central bank of Europe does, if you print money like crazy, then you are at the same time forced to buy a certain percentage of gold.

FSN: So, this would really negate some of the purposes of quantitative easing. If you are trying to debase your currency by printing extra money as our Fed is doing and as the ECB is doing and you have to buy gold to back it up, aren't you really defeating the purpose?

Stamm: No, I don't think so at all. I think forcing the central bank to back up the paper money to a certain percentage with gold, this would be very important and perhaps Switzerland in a certain way could serve as an example to others. Because...if we would do so...we would have a reaction from Germany, from Austria, because their...populations would start to complain also: "Why do our countries not do the same?"

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