History of Switzerland as a Banking Center – and Why That Makes Sense
Early Development of Swiss Banking
Switzerland has a long history as a financial center. In particular, the country has a noted history of banking stability and confidentially, and as a safe haven for the storage of gold.
This history begins in the 16th century, when many Huguenots and other Protestant refugees fled to the Reformed areas of Switzerland – Geneva, Basel, and Zurich, in particular – seeking freedom from religious persecution. Many of these refugees were skilled craftsmen and businessmen, leading to development of manufacturing industries (like watchmaking). A high demand for manufactured goods brought an influx of capital into the country. While Switzerland remained largely neutral during the Wars of Religion, many Swiss served abroad as mercenaries, and returning soldiers brought a further influx of capital. The development of the banking sector in Switzerland was a natural outgrowth of these capital inflows. Calvinist Switzerland was also friendlier to banking activities on religious grounds than Catholic parts of Europe.
Switzerland remained neutral in subsequent European conflicts as well, adding to its reputation for banking stability. Aside from the country’s political neutrality, Switzerland’s geographic location was also instrumental in its development as a banking center. As a small, landlocked country with few natural resources of its own, Switzerland naturally turned to financial services and manufacturing for economic growth. The mountainous terrain also lent itself well to the construction of vaults for the storage of gold. Switzerland was also surrounded by budding industrial powerhouses in France, northern Italy, and the German states. Multi-lingual Switzerland began providing banking services to each of these markets in the early industrial period, and to this day, there are respective concentrations of bankers serving French customers (in Geneva), Germans (in Zurich and St. Gallen), and Italians (in Lugano).
Swiss Banking Privacy Laws
In the 19th and 20th centuries, the Swiss banking industry grew in large part because of its reputation for confidentiality. This was first cemented in law in 1713 when the Council of Geneva prohibited banks from disclosing client information. Many Swiss banking houses were founded in the late 1700s and early 1800s as wealthy aristocrats from across Europe looked for a place to store their wealth in the midst of political and social upheaval. Later, Swiss banks also became a favored destination for merchants and businessmen, especially as governments expanded in size and increased tax rates. In 1932, a raid on the Paris branch of a Swiss bank (as part of an effort to crack down on tax evasion in that country) and increasing scrutiny by German authorities led to Switzerland further tightening its banking privacy laws. The Swiss Banking Act of 1934 – which remains on the books today – makes it a criminal offense for anyone associated with a bank to disclose client information.
In the 1980s, Switzerland came under increasing pressure from other nations seeking to recover tax revenue from foreign citizens holding assets in Swiss banks. However, Switzerland’s strong tradition of confidentiality in banking prevailed when a referendum to relax privacy laws was shot down in 1984 by a 73-23 margin. Despite increased calls for financial transparency after September 11, and further pressure on Swiss banks since the Global Financial Crisis, Swiss banks have maintained a steadfast dedication to the protection of their clients. Switzerland remains highly regarded as a financial center and is still consistently ranked as a top jurisdiction for secure, confidential banking.
Switzerland’s Affinity For Gold
Until fairly recently, gold was virtually synonymous with money and wealth, so as a banking center Switzerland has long had a natural affinity with the yellow metal. Switzerland’s manufacturing prowess in jewelry and watchmaking also contributed to the development of the precious metals industry in Switzerland. Unsurprisingly, many ancillary industries such as metal refining also developed there; today, of the six largest refiners of gold in the world, four of them are in Switzerland. The amount of gold that passes through Switzerland each year is nearly equivalent to the amount mined across the entire world. Switzerland was the last country to remove its currency from a partial gold standard, only relenting in the 1990s as a condition of joining the IMF. There was even a more recent movement in the country to restore a partial gold standard, though the referendum failed in 2014. Nonetheless, Switzerland retains its reputation for financial stability in an increasingly volatile era.
For the team at Vault, Switzerland was a natural choice for gold storage, both for its stable reputation and its long association with gold. Utilizing gold storage services in Switzerland allows Vault to leverage the country’s well-earned reputation for stability, property rights, and privacy. Providing investors with the security of enforceable legal rights to gold adds to USDVault’s own commitment for risk reduction and contributes to the positive development of the cryptocurrency space.