The name behind the Swiss 20 franc Helvetia gold coin
The name behind Switzerland’s most famous gold coin, and the country itself, originates from a Celtic tribe referred to as the Helvetii that settled in around 500 BC in the alpine regions of what is today recognised as Switzerland. The name of this tribe, and subsequently the region, lived on in the Latin language. Today, Switzerland’s official name is the Swiss Confederation, or Confoederatio Helvetica in Latin, and hence was the reason to name the beautiful female personification of Switzerland portrayed on the obverse of the Swiss 20 franc gold coin “Helvetia”.
The birth of the Swiss franc
Leading up to the middle of the 19th century, Switzerland’s cantons (member states) had the privilege of issuing their own coinage. Exercising their right simultaneously, they issued large quantities of coins that were of different denominations, weights and fineness, and which were likewise composed of different materials. In addition, there was a large influx of foreign coinage due to Switzerland’s favourable geographical trade position and from remittances that were sent back home by the relatively large numbers of Swiss mercenaries who were at that time employed by different courts throughout Europe. The large variety of coins complicated everyday monetary transactions, and thus, in order to alleviate the confusion, the cantons agreed that the exclusive right to mint and issue coinage was to be transferred to the Federal Government. In 1850, with the legislation in place, the Swiss Federal Assembly passed the Federal Coinage Act, which stipulated that silver was to become the basis of the new monetary system and that the new uniform silver coinage was to be called Swiss francs.
The Swiss franc and the Latin Monetary Union
In 1865, Italy, France, Belgium and Switzerland founded Europe’s first major currency union under the name “Latin Monetary Union”. This union was an attempt to unify the respective countries’ money into a single uniform currency. The founding members of the union agreed on a uniform fineness and weight of their coinage, which was set to equal the French silver and gold franc, and they agreed to interchange each other’s gold and silver coinage at parity, irrespective of whether it carried another design, effigy or name. The ratio of the two precious metals was likewise standardised, with 4.5 grams of silver being equal to .290322 grams of gold, a ratio of 15.5 to 1. This standardisation facilitated and simplified trade among the member countries and was seen as an appealing concept, leading other European countries to join as well. Although the union came with numerous flaws, one of them being that individual governments over-issued paper notes above the stipulated fixed ratio that was set between paper notes and circulating precious metal coinage, they were all the consequence of poor human judgement rather than the failure of the uniform precious metal coinage itself. Nevertheless, the union expanded until the advent of World War I, and came to a formal end a decade later in 1927.
The creation of the Swiss 20 franc gold coin
Despite joining a currency union that was based both on gold and silver coinage, Switzerland chose not to issue its own gold francs when it entered the union, a decision that lasted for almost twenty years. The reason for this was twofold: the fact that two of her major trading partners were Italy and France meant that she received a large influx of gold coinage from these two countries, and since their coinage was likewise deemed legal tender by the Swiss authorities, it had no need to issue its own gold coinage. The second reason was that the face value of the gold coins in the currency union was set roughly to equal the market rate for gold, thus rendering it unprofitable to mint and issue such coins.
The other members of the union tolerated the second reason for a while, but when France accused Switzerland of “coinage parasitism”, the Swiss Federal Government decided, solely due to the political squabble, to start issuing its own version of the gold franc in 1883. Although committing to the mintage of the Swiss gold coinage, the issuance of these coins was relatively low for the next twenty years. However, this changed with the advent of the First World War, when both France and Italy abandoned their precious metals standard in favour of a fiat monetary system. In the period between the First and Second World War, Switzerland issued approximately 51 million gold francs, or 83% of all the Swiss 20 franc coins issued since 1883.
The value of Swiss francs was supported by the gold standard
With the United States leading the charge in 1971, the world abandoned the gold standard in favour of a pure fiat monetary system. Although Switzerland shared a similar system in regard to the issuance of paper currency, there was a notable dissimilarity in that the Swiss National Bank, the country’s central bank, was obligated by law to keep at least 40% of its assets in gold bullion. This meant that the Swiss National Bank was not able to expand the money supply (create a fiat currency out of thin air), over the stipulated ratio between paper assets and gold. As a result, the Swiss paper franc was perceived as a trustworthy derivative of the former gold franc coinage, a perception that has made the Swiss franc the strongest and best performing paper currency since the 70s.
Unfortunately, the powers that be decided that it was not in the interest of Switzerland to have a fiat currency that was as good as gold, and so, with political backing, a change was made to the Swiss constitution that took Switzerland out of the gold standard in April of 1999. One year later, with the gold price at a 20 year low of $250 per ounce, the Swiss National Bank began to gradually dispose of its gold reserve by selling it onto the market. The selling of the first tranche was completed in 2005, in which 1,300 tonnes of gold were sold at an average price of $351 per ounce, leading to a considerable loss for the Swiss people considering that the price of gold rose to $1,900 per ounce in 2011. To this date, the Swiss National bank has sold 1,550 tonnes of gold from its original reserves of 2,590 tonnes, leaving it today with only 1,040 tonnes of gold bullion or 10% of the SNB’s assets.