The “gnomes of Zurich”

A phrase from the House of Commons

The phrase that attached itself to the Zurich bankers was older than the crisis that made it famous. The lexicographer behind the website Word Histories has traced it to British political journalism of the mid-1950s. The London Observer of 30 October 1955, reporting a speech by the Labour leader Hugh Gaitskell, referred to “all those clever little financial gnomes, sitting by their tape-machines in Zurich and Paris”. On 7 March 1956 Lord Balfour of Burleigh quoted in the House of Lords a passage from the Manchester Guardian about “little gnomes sitting over ticker tapes in Zurich”.¹ The image thus circulated among British commentators on sterling well before it acquired its canonical form. Its connotation is worth noting. The gnome of Germanic folklore is a small, subterranean creature who guards treasure in the dark. The image transferred that folklore to bankers who were thought to sit in vaults, unseen and unaccountable, moving money against the interests of elected governments.

The first prominent use in the House of Commons came from Harold Wilson, then the opposition’s spokesman on economic affairs, in the debate on the Queen’s Speech on 12 November 1956. Wilson was attacking the Conservative Chancellor, Harold Macmillan, for having talked of disaster if wage claims could not be stopped. When the Trades Union Congress rejected wage restraint on 5 September, Wilson argued, financiers everywhere concluded that an era had ended: “And all these financiers, all the little gnomes in Zurich and the other financial centres about whom we keep on hearing, started to make their dispositions in regard to sterling.”² The context matters. Wilson used the gnomes as a figure for the markets in general, whose verdict on British policy the government had, in his view, provoked by its own rhetoric. Zurich stood in the sentence for the other financial centres as well, a sign that by 1956 the city had become the shorthand for footloose international money.

George Brown and the sterling crisis of November 1964

The phrase acquired its lasting force eight years later, when Wilson was Prime Minister and sterling was under attack. The Labour government that took office in October 1964 inherited a large deficit in the balance of payments, which it put at about 800 million pounds for that year. It decided against devaluation and instead imposed a temporary surcharge on imports. Heavy selling of sterling began on 11 November 1964. Bank Rate was raised from five to seven per cent only on 23 November, after a delay that the markets read as weakness, and reserves continued to drain in the following days. Michael Bordo, Ronald MacDonald and Michael Oliver conclude that the Labour government would have been forced to devalue or float the pound if the Governor of the Bank of England, Lord Cromer, had not secured three billion dollars of credits from other central banks on 25 November.³

It was during this crisis that George Brown, First Secretary of State and head of the newly created Department of Economic Affairs, is reported to have said at a meeting: “The gnomes of Zürich are at work again.”⁴ Brown was, after the Prime Minister, the most senior member of the Cabinet. Placed at the head of a new ministry designed to challenge the dominance of the Treasury, he was personally identified with the growth-oriented National Plan that the government published in September 1965.⁵ For a politician with that agenda, the speculators who sold sterling were more than an inconvenience. They threatened the whole strategy of expansion without devaluation. The image of the gnome allowed him to personify an impersonal market as a group of foreign conspirators. Once Wilson himself had taken up the metaphor in the following weeks, the phrase quickly passed into the language of British politics and then into general English.

The accusation was, on the facts, both unfair and not entirely baseless. Selling of sterling in November 1964 came from many quarters, including British companies that delayed their conversion of export receipts, foreign central banks and multinational enterprises that adjusted their holdings. Swiss banks participated in this movement on behalf of their clients, as did banks in every other financial centre. What made Zurich conspicuous was that its banks managed an unusually large volume of foreign private money and did not reveal on whose account they acted. The Time article of March 1965 observed that Swiss banks, with about one-fifth of their deposits from abroad, had been heavily involved when international clients reduced their sterling holdings. The same article stressed that Swiss institutions had taken part in the three-billion-dollar rescue credit for the pound.⁶ The Swiss National Bank, although Switzerland was not a member of the Fund, was part of the central bank network centred on the Bank for International Settlements in Basel, which organised such operations.

Swiss reactions

The Swiss reaction was a mixture of irritation and wounded dignity. The Time article of 1965 quoted Alfred Schaefer, the head of the Union Bank of Switzerland: “We have been called Shylocks, gnomes, sinister manipulators.” Schaefer added that the banks could not act as a policeman for foreign governments.⁷ The two sentences summarise the Swiss position with some precision. The first rejected the moral charge. The second stated a principle that would recur for four decades: Swiss banks served their clients within Swiss law and did not regard it as their task to enforce the fiscal or exchange-control rules of other states. Behind that principle lay the statutory duty of confidentiality in article 47 of the Banking Act of 1934, discussed in chapter F.II. The same attitude would later be at the heart of the disputes over tax evasion that ended the era of banking secrecy for foreign clients, which Part G of this book describes.

The phrase soon inspired a small literature. In 1966 the American writer T. R. Fehrenbach published a book entitled The Gnomes of Zurich, a popular account of Swiss banking practices.⁸ Two years later the financial journalist who wrote under the name “Adam Smith” published in New York Magazine an article entitled “My Friend the Gnome of Zurich Says Don’t Look Over Your Shoulder, A Major Money Crisis is Gaining on You”, which used the figure of a knowing Zurich banker as a narrative device for explaining the strains of the monetary system. The gnome had become a stock character, half villain and half oracle, whose supposed wisdom lay in his indifference to politics.

Over time many Swiss bankers adopted the phrase with a certain ironic pride. To be called a gnome was, after all, to be credited with the power to move currencies. In the business of managing foreign wealth, a reputation for discretion and hard money was an asset. The image nevertheless had a cost. It fixed in the minds of foreign politicians and publics the idea that Swiss banking was something that happened in the dark, at the expense of other nations’ treasuries. Every later controversy, from the Chiasso affair of 1977 through the dormant accounts of the 1990s to the tax disputes after 2008, found that image ready to hand. A financial centre whose name had become a metaphor for anonymous money found it harder than others to persuade the world that it served legitimate purposes.

The sterling crisis did not end in 1964. The pound came under renewed pressure in 1965 and 1966 and was devalued on 18 November 1967 from 2.80 to 2.40 dollars, a step that Bordo, MacDonald and Oliver regard as the end of sterling’s role as a major reserve currency.⁹ The devaluation shifted speculative pressure to the dollar and to gold. In that sequence of events Zurich made its most lasting gain of the decade.

Notes

1. Word Histories, “origin of ‘the gnomes of Zurich’ (international bankers and financiers)”, 19 September 2018, https://wordhistories.net/2018/09/19/gnomes-zurich-origin/. The author notes that the original source of the imagery remains unclear. ↩
2. House of Commons, Hansard, Queen’s Speech debate, 12 November 1956, speech of Mr Harold Wilson, https://hansard.parliament.uk/Commons/1956-11-12/debates/2601dd81-fecd-4ecb-bc03-c0d034d8042c/QueenSSpeech. ↩
3. Michael D. Bordo, Ronald MacDonald and Michael J. Oliver, “Sterling in Crisis: 1964–1967”, NBER Working Paper 14657, January 2009, https://www.nber.org/system/files/working_papers/w14657/w14657.pdf. ↩
4. Wikipedia, “Gnomes of Zurich”, https://en.wikipedia.org/wiki/Gnomes_of_Zurich, citing among others Daniel Fasnacht, Open Innovation in the Financial Services (2009), and an article by “Adam Smith” in New York Magazine of 24 June 1968. The exact occasion and wording of Brown’s remark rest on these secondary accounts. ↩
5. Wikipedia, “George Brown, Baron George-Brown”, https://en.wikipedia.org/wiki/George_Brown,_Baron_George-Brown. ↩
6. Time, “Switzerland: The Gnomes of Zurich”, 12 March 1965, https://time.com/archive/6633506/switzerland-the-gnomes-of-zurich/. ↩
7. Time, “Switzerland: The Gnomes of Zurich”, 12 March 1965, https://time.com/archive/6633506/switzerland-the-gnomes-of-zurich/. ↩
8. Wikipedia, “Gnomes of Zurich”, references section, https://en.wikipedia.org/wiki/Gnomes_of_Zurich; the book also has an entry at Goodreads, https://www.goodreads.com/en/book/show/13507504-the-gnomes-of-zurich. ↩
9. Michael D. Bordo, Ronald MacDonald and Michael J. Oliver, “Sterling in Crisis: 1964–1967”, NBER Working Paper 14657, 2009, https://www.nber.org/system/files/working_papers/w14657/w14657.pdf. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.