Swiss National Bank Sales: Lessons and Experiences

Introduction

I am pleased to be in Washington today and would like to thank Fred Bergsten and his colleagues at the Institute for International Economics for providing me with this opportunity to talk about the recently completed gold sales of the Swiss National Bank (SNB).

In June 1999, the Governing Board of the SNB decided that half of its then gold reserves of 2,590 tons were no longer required for monetary purposes and that it would inform the market and the public accordingly. This decision contributed to the process that eventually led to the first central bank agreement on gold sales. This so-called Washington Agreement provided the framework for the subsequent gold sales of the Swiss National Bank, the European Central Bank (ECB), and 13 European national central banks. Under this agreement, the SNB’s realized sales of 1,170 tons, which represented the bulk of the total sales of 2,000 tons for all participating central banks. The SNB completed its gold selling program on March 30, 2005, after selling a residual 130 tons under the second central bank agreement on gold sales. After completion of the gold sales and the distribution of the proceeds from the sales to the Swiss government and the 26 cantons, the SNB’s balance sheet will consist of approximately CHF90 billion. With the remaining 1,290 tons of gold reserves, the SNB retains roughly 20 percent of its assets in gold. By international comparison, the SNB continues to hold a very significant stock of gold.

During the remainder of my talk, I would like to address what strikes me as the most relevant issues that came up in connection with these gold sales. I will begin by outlining the historical context of the SNB’s Governing Board’s decision to declare 50 percent of its then gold reserves as no longer necessary for monetary purposes. As you will see, a number of constitutional and legislative changes were necessary for that policy decision to result in actual gold sales. I will then outline how the SNB designed, revised, and implemented its selling strategy. Finally, I will attempt to draw some tentative lessons from these gold sales, some of which might be of interest to those central banks or international institutions that are considering gold sales or have recently begun to sell gold.