It will be interesting to just how far these discussions go, we think that it is a terrific idea and a gold franc would be a roaring success. However, this view may not be shared by the Swiss banking community and no doubt those sovereign states that have no gold would find it troublesome in terms of their inability to compete. Also keep an eye on Mexico, a silver backed Peso could well be on the cards.
ZURICH (MarketWatch) — The Swiss Parliament is expected later this year to discuss the creation of a gold franc — a parallel currency to the official Swiss franc, with the fringe initiative likely triggering a broader debate about the role of the precious metal in the Alpine nation.
The initiative is part of “Healthy Currency,” a campaign sponsored by politicians from the right-wing Swiss People’s Party (SVP) — the country’s biggest — that is seeking to capitalize on popular fears about global financial turmoil and inflation to reverse the government’s current policy on gold.
“I can imagine that this will spark some sort of debate about gold and there may be some pressure to accept the parallel currency,” said Dr. Gebhard Kirchgaessner, an economics professor at St. Gallen University. “But it won’t have any real effect on the economy. It seems incredible to imagine that there are people out there willing to buy millions of these things.”
Switzerland, which in 2000 became one of the last countries to decouple its currency from gold, is not the only place to contemplate a change in the precious metal’s role amid controversy over government involvement in the economy. In March, Utah became the first state in the U.S. to legalize gold and silver coins as currency, while similar legislation was considered in Montana, Missouri, Colorado, Idaho and Indiana.
“I want Swiss people to have the freedom to choose a completely different currency,” said Thomas Jacob, the man behind the gold franc concept. ”Today’s monetary system is all backed by debt — all backed by nothing — and I want people to realize this.”
A good part of the enthusiasm for gold, which provokes strong emotion among many who invest in it, has to do with its price: the yellow metal has more than quadrupled during the last decade and now stands at more than $1,500 per ounce.
In the U.S., legislation to allow a gold currency is largely symbolic — a protest against what many consider irresponsible spending by central governments to recharge economies. But according to Jacob, the gold franc has a more practical goal: giving small investors the opportunity to safeguard their investments against global uncertainty.
Modest investors face several hurdles to investing in the precious metal, said the 50 year-old Jacob, a former pilot and currently a sales coach at Zurich Financial Services Group. Collecting coins, bullion and gold certificates typically requires professional advice and even the smallest coin costs around 100 francs. One of the new gold francs, on the other hand, with a gold content of 0.1 grams, could be purchased for just 5 francs (at current prices).
While there is evidence that investing in gold is increasingly popular in Switzerland and other countries, the idea of establishing a gold franc is not foremost on the minds most ordinary Swiss, some of whom still find the subject of gold uncomfortable given the country’s association with precious metals looted in World War II.
“I got rid of my coins a while ago,” said Esther Heusser, a social worker in Jona, Switzerland. “I just didn’t want to think about where they came from.”
The real problem
Very few have even heard of the initiative. The rising Swiss franc, which has jumped 16 percent in two years against the euro and the dollar thanks to its safe haven status, is a much wider concern.
This “is the real problem and it is clear that neither the [Swiss National Bank] nor the government have anything really meaningful against it,” St. Gallen’s Kirchgaessner said. “We might have a real crisis in a couple of years.”
Indeed, the strong franc has clipped corporate earnings of many exporters and has lead to some painful restructuring. Because of the ongoing global financial crisis, investors here and abroad are seeking a safe haven from economic uncertainty and inflation, which Switzerland’s low debt and firm economic footing provides. High gold reserves have also helped.
The question is who will be the first to back their currency with a hard asset, our money would be on Mexico at the moment as they could well back the Peso with silver. However, the return to a gold/silver standard is still a while away from making a return, but return it will.
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