As you can see in Figures 1 and 2, Switzerland held more than five times the amount of gold on a per capita basis than the second-ranked Netherlands. Similarly, its gold holdings as a proportion to imports also far exceeded those of any other G10 country. In light of this extreme position, it is legitimate to ask why the issue of gold sales did not arise much earlier in Switzerland. For one thing, public opinion in Switzerland generally held gold in high esteem as a symbol of monetary stability. More importantly, however, a reduction in the gold stock required a fundamental reform of the legal framework of the Swiss monetary system. The process leading up to this reform was lengthy and complex. As you know, Switzerland is proud of its political system of direct democracy and consensual government. On the whole, these traditions have served the country well. Comprehensive legal reforms, however, often require substantially more time than in other democratic traditions. Despite the fact that Switzerland had been under a flexible exchange rate regime since the breakdown of Bretton Woods, the Swiss franc remained legally linked to gold. For practical reasons, this legal link of the Swiss franc to gold had lost its monetary policy relevance. Nonetheless, it prevented the Swiss National Bank from buying or selling gold at any other price than the official parity of CHF 4’595 per kg. In the late 1990s, this parity was three times lower than the price of gold in the open market.
The fifteen central banks furthermore agreed not to expand their gold lending and gold forward transactions during this period. While the U.S. and Japan were not part of the joint statement, they declared that they had no intention of changing their “passive” gold policy. Furthermore, the IMF announced that it would abandon its plan to sell some of its gold reserves in the market. These declarations had a big impact on the market for two reasons: First, they removed the uncertainty about the behaviour of the holders of 85% of the world’s official gold reserves. Second, the planned annual total sales (400 tonnes) compared favourably with the sales and increases of gold lending activity of the previous years (700 tonnes). 1  The idea of a Swiss Foundation of Solidarity was suggested to the President of the Swiss Confederation by the then President of the Governing Board of the SNB. 2  BIS Review 31/2005  The Washington joint statement on gold was a coordinated effort aiming at clarifying the intentions of the participants in a market prone to rumours and secrecy. Of the 1,300 tonnes of gold which the Swiss National Bank intended to sell, 1170 tonnes were included in the 2000-tonne total sales quota of the Washington Agreement. In other words, the SNB ended up being the main beneficiary of the agreement. Formally, the initiative for the Washington Agreement did not come from the SNB.