Eye witness

April 16, 1999

Swiss voters are expected to end one of the world's odder macroeconomic anomalies this weekend when a referendum will determine whether the world's richest country finally comes off the gold standard.

Many United Kingdom economists were surprised to learn that Switzerland, which has the world's third-largest gold reserves, was still on a gold standard, which was abandoned by most industrialised countries during the depression of the 1930s.

"The UK came off the restored gold standard in 1931, but the Swiss were very reluctant at that time," said Stephen Broadberry of Warwick University's department of economics. "The gold standard died a long time ago. This is almost a curiosity rather than something of significance for the global economy."

Iain Begg, joint director of the European Institute at South Bank University, says that Switzerland has effectively been on a Deutschmark (now euro) standard for many years.

Professor Begg added: "Switzerland alters interest rates in line with euroland - witness the change last week - and cannot really be said to have an independent monetary policy."

Economists suggest that Switzerland's prudent and well-managed economy mean few, if any, domestic problems and the international implications are negligible.

In effect the Swiss central bank is simply freed of a commitment to buy or sell gold at a fixed price and has more discretion about the form in which it holds exchange reserves (precious metals, other currencies, etc). The only cloud on the horizon could be for the Swiss watch and jewellery industry, which will no longer be able to buy gold at a fixed price in Swiss francs. The bank will no longer back francs with gold, but the final links will not be cut until March 2000.

NoProfessor Begg said: "If the changes are approved I can see no practical difference for those holding Swiss currency or Swiss bank accounts. Since 1951, there has not been an option to convert your 100 SFr note into gold coins, so that what is being withdrawn is merely a fiction!"

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