The monetary history of the Swiss Federation is almost as eventful and momentous as the rest of its history between the 17th century and the present.
The notorious culture of secrecy, Swiss banking traditions are known to predate the federation itself. As Financial News explains:
The 1713 Great Council of Geneva formally adopted banking regulations that enshrined client confidentiality in civil law, a lure to wealthy individuals, aristocrats and royalty to base their cash in Swiss banking vaults.
Over the centuries political neutrality combined with the heritage of banking secrecy, served the Swiss financial industry well, allowing it to consistently appeal to a wealthy customer base. However, controversy throughout the 20th century regarding the gold looted by the Axis powers threatened to tarnish Swiss banking reputation. Additionally, the association of Swiss bank accounts with tax evaders and other criminals further threatened their image.
Nonetheless, the diplomacy and skill of policymakers, combined with revisions in Swiss banking regulations (like the Swiss Banking Act of 1934) to accommodate these developments in the world have managed to secure the character of Swiss banking.
Precious Metal History
The first banking institutions are known to have been established with the wealth acquired by mercenaries and merchants in the 17th century. At the time, a variety of different currencies are known to have been in use (across the many ‘cantons’), mostly based on silver. Later, the system was simplified after the establishment of the Swiss Federal constitution in 1848, which enshrined that only the government will have authority to mint coins for currency.
The use of gold and silver for currency denominations persisted throughout the 19th century, followed by the gradual shift to bank-notes issued against gold bullion. Over decades, Swiss gold reserves grew substantially, allowing the currency to gain an international reputation for stability. In 1945, the Swiss franc was pegged to the US Dollar, as per the Bretton Woods agreement, and in turn was pegged to a value in gold.
While most other currencies abandoned the gold standard by 1974, due to amendments in the IMF articles of agreement. Switzerland retained its gold-backed currency, for almost two more decades. However, by 1999, it too gave up the gold standard, amid dissenting opinions like the following:
The demise of the Franc and Swiss sovereignty began in 1992 when the Swiss made the fateful decision to join the International Monetary Fund (IMF). The IMF’s Articles of Agreement (Article IV, Sec 2b) clearly state that no member country can have a currency linked to gold and, as such, Switzerland immediately set out on a course to de-link the Franc from gold.
Swissinfo provides further analysis:
These sales were definitely a mistake because gold may be the only commodity which throughout the course of history has always been able to compensate at least for inflation,” says economist Peter Bernholz, a specialist in monetary history. “But at that time, everyone wanted to profit from this windfall.
Gold Reserve Referendum
The ‘Save Our Swiss Gold’ movement which gained some momentum between 2011 and 2013, called for a near three-fold increase in gold reserves held by Swiss banks.
The Swiss National Bank strongly opposed the motion as it would inhibit the continued use of loose monetary policy. However, supporters of the motion saw this as a stepping stone towards a gold-backed currency, which would bring greater monetary stability.
By means of the Swiss system of direct democracy, this motion was put to a vote in 2014. The popular opinion was for the current system to persist, and therefore the motion failed.