Steve Forbes, chairman of Forbes Media, applauds Swiss voters for rejecting last weekend's referendum that would have required Switzerland's central bank to keep at least 20 percent of its assets in gold, up from 7.5 percent currently.
"The wording of the referendum revealed a major obstacle to any return to a genuine gold standard: ignorance of what makes such a system work," he writes on Forbes.com.
"The proposition was actually focused on the levels of Switzerland's gold reserves, not on an actual return to a gold standard."
The referendum would have prohibited the central bank from selling any of its gold. "This is a ludicrous restriction," Forbes says. "Under all gold standards, . . . countries routinely have bought and sold gold. In fact, you can't have a genuine gold standard with such a prohibition."
The requirement for the central bank to keep 20 percent of its assets in gold "is another arbitrary rule based on ignorance," Forbes writes.
"The key to a successful gold standard is gearing monetary policy to keeping the currency fixed to a defined amount of gold," not dictating how much gold a central bank holds, he says.
"The purpose of a gold standard is to keep a currency stable in value. Other currencies not on a gold standard may go up or down vis-a-vis the gold-linked one, depending on the particular monetary policies governing them. But the golden currency stays fixed in value," Forbes explains.
"A gold standard is remarkably easy to operate — if you truly understand what such a system is all about. Clearly, the referendum’s proponents did not."
Gold hit a four-year low of $1,130.40 Nov. 7 and settled at $1,197.50 Tuesday.
MarketWatch columnist Brett Arends says global central bank easing could push the precious metal higher.
"The Japanese are now printing new yen as fast as they can run their presses," he writes. "The Chinese are now printing new renminbi as fast they can run their presses. The Europeans are probably about to start printing new euros as fast as they can run their presses."
Central bank easing helps gold because it can boost inflation, and gold is often bought as a hedge against inflation.
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