Citigroup's chief economist and a former Bank of England's policymaker Willem Buiter said in a report yesterday that the initiative requiring the Swiss National Bank to have a fixed portion of its assets in the bullion (gold) makes no sense since the precious metal is basically the same as the virtual currency bitcoin.
According to Buiter, "There is no economic or financial case for a central bank to hold any single commodity, even if this commodity had intrinsic value. Forbidding a central bank from ever selling any gold it owns reduces the value of those gold holdings to zero."
Switzerland holds a national referendum on November 30 that would require the Central bank to hold at least 20 percent of its assets in gold, up from the previous 8 percent. All of the gold then have to be kept within the country and can never be sold.
Polls last week showed that most of the voters oppose the "Save Our Swiss Gold" measure. However, some were still undecided. Proponents of the said initiative said that the move would actually preserve national wealth. On the other hand, the government and the central bank oppose the move as tit would hinder monetary policy. Citigroup said that the Central bank would have to purchase at least 1,733 metric tons of gold, compared with yearly production of about 2,500 tons to be able to meet the threshold by 2019.
With 1,040 metric tons, Switzerland is currently the seventh-largest holder of gold by country. The additional gold is estimated by the Switzerland National Bank to be around 70 billion francs or $72.8 billion. This will make Switzerland the biggest after U.S. and Germany.
Buiter added that gold has no intrinsic value like bitcoin and is costly to produce and store. Buiter continued, "If the central bank is to invest in commodities, better to have a balanced portfolio of commodities or, more conveniently, a balanced portfolio of commodity ETFs or other derivatives."
