| Opening Remarks, Conference “Seventy Years After: The Final Collapse of the Gold Standard in September 1936” |
Jean-Pierre Roth, Chairman of the Governing Board of the Swiss National Bank |
| Conference “Seventy Years After: The Final Collapse of the Gold Standard in September 1936”, University of Zurich, 15.12.2006 |
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"As I said at the outset, the role of gold has faded over the years. But gold had an afterlife long after it ceased to be relevant in any form for the conduct of monetary policy. First and foremost, the legal link between the Swiss franc and gold continued to exist until very recently. The constitutional changes that severed this link took effect in 2000, followed, within the same year, by the corresponding changes in the relevant law. The new law no longer includes an obligation on the part of the SNB to redeem banknotes for gold – an obligation which – in practice – had been suspended for decades. Moreover, it has abolished the minimum gold coverage of the banknotes in circulation and the gold parity of the Swiss franc. With these changes, gold finally became a normal and marketable asset for the SNB. In May 2000, the SNB began to sell part of its gold stock. About 50 percent of the gold once owned by the SNB has now been sold. I should emphasise that the SNB will continue to hold gold as a monetary reserve, but the legal relics of the gold standard era no longer immobilize the gold stock as they did for decades.
A second aspect of the afterlife of the gold standard is its presence in discussions on domestic and international monetary standards. In the 1970s and 1980s, when inflation was high and exchange rates volatile, a small but vocal group endorsed the gold standard as an alternative to the paper standard of the post-Bretton Woods era. Judged by practice, they were on the losing side. There appears to be a widespread consensus – both among economists and central bankers – that a gold standard generates few positive things that cannot be provided by other means. For one, the gold standard has all the drawbacks of fixed exchange rates. That is, monetary policy cannot be used to achieve domestic goals and the parities are vulnerable to speculative attacks. Also, the gold standard has all the disadvantages of a commodity standard. In other words, the system is not only expensive to maintain, it also allows the supply and demand conditions for the commodity in question to affect the general price level.
Some advocates of the gold standard did not propose the gold standard as an international system but promoted it as a tool for solving domestic problems. In particular, they argued that the link to gold, by providing a credible anchor, would keep inflation under control. This argument is valid as far as it goes, but ignores the fact that a gold standard has its own credibility problems. If countries can tie their currencies to gold, they can also untie their currencies from gold. This is what happened in the 1930s. The markets know that and form their expectations accordingly.
For this reason, most countries preferred to go other ways. In recent years, many of them have adopted clear mandates for their central banks which specify price stability as the primary goal..."
Beyond the gold standard
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