The Swiss Vollgeld referendum: Should we prepare for a Brexit-like shock? - ING

On 10 June, the Swiss vote on a fundamental monetary reform and the probability of a “yes” may be underestimated, as was the case with the Brexit referendum, according to analysts at ING.

Key Quotes

“The short-term impact of a “yes” would be great uncertainty but, in the longer term, Vollgeld could hurt the economy, have important redistributive consequences and greatly increase the role of the state in the economy. The CHF will suffer from a “yes” in the short run, but conservative monetary policy and safe haven status may be a CHF positive in the longer run.”

“Implications for the Swiss franc of a “yes” to Vollgeld

• In the short run, the uncertainty of re-wiring the monetary and banking system in Switzerland would probably be negative for the CHF. Wider credit spreads and more limited access to credit should pose headwinds to an economy already suffering persistently low inflation. Some models put EUR/CHF fair value at 1.50 and we would say the uncertainty could see EUR/CHF rise above 1.30 from near 1.20 today.
• The situation over the longer term could be entirely different however. Spooked by the prospect of helicopter money, negative equity and the inability to reduce money supply when needed, the SNB may prefer a conservative monetary policy, limiting the creation of CHF. Moreover, the prospect that every Swiss franc would be held at and backed by the SNB could, once the dust has settled, deliver a more positive re-assessment of the CHF as a safe haven currency.”