SNB chairman says gold initiative would be disastrous-paper

ZURICH - A vote in favour of Switzerland boosting its gold reserves would be disastrous for the country, the chairman of the Swiss central bank said in a newspaper interview published on Thursday.

The "Save our Swiss gold" proposal, spearheaded by the right-wing Swiss People's Party (SVP), aims to ban the central bank from offloading its reserves and oblige it to hold at least 20 per cent of its assets in gold. The referendum is scheduled for Nov. 30. The SVP argues it would secure a stable Swiss franc.

The initiative has sent jitters through both the gold and currency markets, since it would require the Swiss National Bank (SNB) to massively bolster its holdings of the precious metal.

The chairman of the SNB, which had already expressed its opposition to the proposal, said it would make it harder for the central bank to do its job. "The initiative is not in Switzerland's interest because it wants to fundamentally change the rules of our monetary policy,"Thomas Jordan was quoted as saying in Swiss newspaper Neue Zuercher Zeitung.

"It would be disastrous if Switzerland limited its own capabilities to react to disorder and maintain the stability of its currency." Jordan said a 'yes' vote would force the SNB to buy around 70 billion Swiss francs (S$90 billion) worth of gold.

A closely watched survey showed last month the proposal had the support of 44 per cent of the public, falling short of the majority backing it needs to pass into law. Another poll last week by free Swiss newspaper 20 Minuten showed support for the proposal had waned.

In a separate interview with Swiss newspaper Blick, also published on Thursday, Jordan said that the gold initiative could make it harder for the central bank to defend its minimum exchange rate at 1.20 francs per euro, introduced in September 2011 to ward off deflation and a recession.

"The minimum exchange rate is central at present in order to fulfil our monetary mandate," Jordan is quoted as telling Blick."A vote in favour of the gold initiative would make the implementation of the minimum exchange rate more difficult."

Had the legal terms of the initiative been in place three years ago when the central bank capped the franc, it would have forced the SNB to buy gold as well as euros in large quantities to defend the currency floor.