Switzerland is one of the safest countries in the world – especially as regards financial matters. This is a situation which has evolved over a period of time. Again and again, people have recommended Switzerland as a financial safe haven – and have always been proven right. For example, Carl Menger, founder of the Austrian School of Economics, advocated investing in gold and Swiss bonds, among other things, before the outbreak of World War I, an event which destroyed personal wealth on a grand scale. And the Swiss banker Felix Somary, who was born in Vienna, was another who stored his own assets, and those of his clients, in Switzerland in the form of physical gold.
Switzerland’s reputation as a stable refuge for wealth is unquestionably good, so there should be no room for any further doubts on that score. This article will therefore address some answers to the following more-nuanced questions: Is it safe to store your own precious metals in Switzerland? Is it conceivable there could be a gold ban in Switzerland? Would the Swiss state want to repay its own national debt by using capital assets? What differentiates Switzerland from other countries which are also considered to be safe havens? And what specific advantages does Switzerland have to offer?
The Swiss political landscape
Switzerland’s direct democracy is a political instrument which can rarely be found in other countries elsewhere in the world. This type of government is not only corrective, but above all preventive. All articles of the constitution must first be submitted to the Swiss people. And new laws of any kind must also be brought before the people if at least 50,000 voters request a public referendum vote. Switzerland has a total of around 5.5 million eligible voters, so achieving such a level of support for most proposals is a relatively small hurdle.
The preventive effect of such an institution works as follows: In order to avoid provoking a people’s referendum, any legislative proposal which Swiss politicians may wish to put forward must ensure that it demonstrably takes into account the most diverse interests. Thus, politicians are seriously engaged in protecting every interest they possibly can. Because if any particular interest group – an association, a party, a language region or even an entire population – should feel the need to defend themselves against a new law, this could cost those politicians sponsoring the new legislative proposal dearly in terms of time, money, and of course reputation. So right from the drafting phase of any proposed new law, strenuous attempts are made to safeguard the interests of as many parties as possible, and also to respect and preserve the interests of minorities.
Ultimately, direct democracy is also one of the important reasons for the low levels of taxation in Switzerland. Every tax increase has to be approved by the Swiss people, and is therefore only approved once all other options seem to have been exhausted and if it seems certain the new taxes have some sensible purpose.
It seems most unlikely that the Swiss people would agree to a law which amounts to a gold ban, or even one which sanctions the confiscation of gold, because hardly anyone would consent to the confiscation of their own capital wealth. The frequently rumoured accusation that a Swiss emergency law could grant the Federal Council unrestricted powers, and thus enable a compulsory purchase of gold, is also unthinkable in the light of a sober analysis. You can read more about this in an extensive article here .
Swiss political independence
Switzerland is one of the few countries in Europe which is neither a member of the European Union (EU) nor a member of the European Economic Area (EEA). Instead, it regulates its relations with neighbouring countries and the EU via bilateral agreements which govern the rights and obligations Switzerland has towards its nearest neighbours. Thus, as a nation she is basically free to go her own way and shape her own laws as she thinks best, via her own institutions.
This special status has specific implications, as for example in the case of the new 5th EU Anti-Money Laundering Directive, which all EU members and EEA states, such as Liechtenstein, were required to implement. While Switzerland adopts changes related to this law if they are considered necessary and sensible, it nevertheless has the freedom to decline to adopt any nonsensical regulations. This is also the reason why the mere storage of precious metals in Switzerland is still not subject to any regulations, and still carries no disclosure obligations .
A constitutional state with its own currency
Like all western democracies, Switzerland has a functioning, independent judiciary and therefore fully qualifies to be regarded as a constitutional state. Another point very much in Switzerland’s favour is that it has its own currency – the Swiss franc. This is issued by an independent central bank, the Swiss National Bank. And a further advantage of having its own currency is that, despite living in a modern, inter-connected world, this gives Switzerland far more leeway to manage its monetary policy as independently as possible.
Furthermore, this facility allows the Swiss state to issue bonds in its own currency. And because these government bonds are naturally issued in Swiss francs, that means there is no foreign currency risk for the state. The fine detail of such arrangements helps to explain why the Swiss franc continues to be a highly regarded currency on the international financial markets, and thus a trusted safe haven. As the history of money demonstrates, stable hard currencies like the Swiss franc are always good for a country over the longer term.
The unique Swiss mentality
The Swiss love their privacy. Banking secrecy for people not resident in Switzerland is a thing of the past, but it still applies for Switzerland’s resident population. When it comes to their own finances, assets and money, Mr. and Mrs. Switzerland are naturally very secretive. So abolishing banking secrecy within their own national borders is therefore hardly conceivable. Even political parties which are ideologically opposed to such a concept seem reluctant to even dare to attempt abolition – the consequent depletion of party’s resources and the damage to it’s reputation would be just too great. Against this domestic background, any obligation to declare the contents of safe deposit boxes seems quite unimaginable.
National debt versus national wealth
Debt, especially government debt, always seems to have somewhat negative connotations. But even though this might raise some legitimate concerns, every situation must always be viewed within its appropriate overall context. The total Swiss national debt of 105 billion must be properly compared with the country’s national wealth. In Switzerland, this stands at 1,800 billion, which is approximately seventeen times the national debt. That means even if the Swiss state were to pay off its debts by means of some kind of expropriation – and bear in mind that such a move would be almost impossible, given the legal right of veto which Switzerland’s direct democracy grants to its people – as a result, the average Swiss citizen would still have to surrender only about 6 percent of their wealth to the state. This represents an individual’s national debt payment of 13,000 francs, which would come from a per capita wealth currently around 200,000 francs in Switzerland. So as this mathematical example clearly shows, any fears about the loss of one’s own precious metals to repay the Swiss national debt are most certainly unfounded.
Any chance that Switzerland’s national debt is likely to exhibit significant growth in the foreseeable future also seems to have been effectively negated by the passing of the Swiss debt brake legislation. This measure obliges the state to generate a surplus in the good times which can then be used to stimulate the economy in those moments when its performance might be judged to be much weaker. So the government’s debt must not be allowed to increase across an entire economic cycle. This mechanism will, for example, ensure that any deficit resulting from the present coronavirus measures will not ultimately alter anything about the relationship between Switzerland’s national debt and its domestic assets. Debt brake legal requirements mean the additional expenditure (estimated at 40 billion for 2020) will have to be corrected in the following years when the economic performance improves.
Switzerland from a military perspective
After almost seventy years of peace, war now seems more unlikely than ever. But even though no one would ever wish it, the return of armed conflict across national borders can never be categorically ruled out. Unlike many other small, neutral nation states, Switzerland therefore continues to rely on its own independent, fully equipped army – thus following the time-honoured wisdom of the Roman military writer Flavius Vegetius Renatus, who remarked: “Whoever wishes (for) peace prepares (for) war.”
Although Switzerland, like almost all countries, has downsized its standing army in recent years, it has nevertheless been technologically upgraded and adapted to meet the demands of modern warfare. Even though an emergency for today’s Swiss Armed Forces primarily means disaster response and civil protection, it is still able to respond in the event of a military crisis. And maintaining these capabilities also ensures such capacity can always be expanded when required to address a changing threat situation. Switzerland’s army guarantees Swiss sovereignty and the freedom of its people. And to this day, every Swiss soldier, with very few exceptions, is still armed with a personal weapon (a pistol or assault rifle). So Switzerland remains alert, prepared for any kind of military action, and well able to protect its valuable assets in the event of an emergency.
Switzerland’s gold industry
Switzerland is the land of gold refineries, and four of the six largest gold refineries in the world are located here. The Swiss Alpine republic is the world’s leading gold importer, outperforming China, Great Britain and Hong Kong. Two thirds of all global gold production is physically transported into the country, where it is refined and then, in most cases, re-exported again. In total, more than 80 percent of the total output of Swiss gold refineries follows the export route. In 2018, this trade in precious metals was said to have been worth 68 billion, which makes the gold industry a major pillar of Switzerland’s foreign trade.
Supported by Zurich’s role as a major European financial centre and home to a leading international stock exchange, Switzerland is not only at the forefront of gold trading on paper, it also excels in the physical conversion of gold. It is this enduring proximity to gold refineries, and the highly liquid gold trade itself, which has prompted the development of a highly professional environment for storage and ultra-secure safekeeping in this country. This financial ecosystem with its vibrant mix of mutually inspiring players, and its great importance for the local economy, make Switzerland one of the safest countries in the world for the storage of personal gold wealth.
- Direct democracy in Switzerland has a preventive effect and curbs politicians with more extreme views. Those in office are thus incentivised to work towards the broadest possible consensus and to avoid any radical, rash decisions.
- Constitutional amendments must go before the people, and a people’s referendum can be easily set up by those who oppose any new laws. The Swiss electorate therefore always has a chance to deliver its verdict and would never accept a gold ban, or even agree to any confiscation of gold.
- Switzerland is a politically independent nation and can thus formulate its own laws. In concrete terms, this means, for example, that the mere storage of precious metals is still not subject to any regulation, nor does it require any form of disclosure.
- Because Switzerland controls its own currency, the country can follow its own independent monetary policy and thus is not exposed to any additional currency risks when borrowing money.
- Domestic banking secrecy is still very important to Mr and Ms Switzerland. Any obligation to declare the contents of safe deposit boxes therefore seems practically inconceivable.
- A national debt currently running at CHF 105 billion is totally offset by a net worth of CHF 1,800 billion. And with its debt brake legislation, Switzerland also has an effective instrument for controlling the size of the national debt.
- Switzerland still has a capable army which is well able to protect the country’s assets in an emergency.
- Switzerland has the world’s largest gold refineries and a highly liquid gold trade.