MArcomage

A nice variation could be:
Replaces all non-rare cards with any keyword in game with wheat farm
Swords to Plowshares style.

Or maybe just add Wheat farm to the draw list?

I don't like the idea of my opponent having 7 Wheat farms and a rare on their hand :P

but I like the idea of me with 7 wheat farms and a rare in hand :)

How about replacing ATTACK only cards?

That is what it essentially does though. I think sheath your swords is pretty good as it is. Maybe we can have the player who plays it to suffer a penalty because usually it accompanies 0-cost or keywordless decks or force them to play it at a certain point of the game. e.g:

-> Player's stock -x, where x = number of replaced cards (/2?) (that way he only plays it when he's desperate and Merchant can recompensate after a few rounds so not a bad limit)
-> only playable when If New
-> Only playable if player's keyword cards >= opponent's keyword cards/2 (that way both players suffer almost equal damage)

I agree with Damalycus, replacing attack only cards, previous version of this card was much better ...

Now is well

How about at least making it 5/5/5?

Or another thought - cannot discard NEW cards. So at lest it does not cancel fullhand summon rares like necropolis, holy mountain and etc.

Yet another suggestion. Make it work like ice queen. Give wall/resources/tower for every..

IMO good idea. +1 stock for each replaced card - similiar to Danai Present

It's an answer for this thread.
Wish, Second chance, Auxilia and my favourite card of all times - Scepter of evolution can counter Sheath your swords pretty well. Purifying fire could be effective too, but only if you were lucky enough to draw it right after Sheath your swords AND don't have Merchant in your deck. If you have Caravan - you probably have a deck that is almost immune to Sheath your swords, and I don't see any reason why Palisade wall should be included in deck over ~25 useful common zero cost cards.
By the way, Militia can be kinda useful too...
But yes, if you've managed to get 2-3 Sheath your swords, and now it's can be easily done with Halfling rogue, it's really, really hard for your opponent to counter it. And there is obvious way to break this combo - 1/1/1 cost for Sheath your swords.

Yeah, just like those Moon cards which are intended for zero/keywordless cost but they are not

I would like to raise its cost (at least 3/3/3), so it cannot be summoned by halfling rouge. This nerf would make this card loose quite much power.
On the other side, the whole discard cards you meantioned costs 1) much more recources 2) You cannot have more of these uncommon counters than your enemy can have this card doubled and 3) when you rely on hand manipulation or combos, you have almost lost the game. This card is a game breaker for any combo or hand manipulation relying deck, so a higher cost is really needed, since then the counters would then be really counters, since now they only provoce only the next copy of this card and waste a bunch of your recources

And another suggestion

it should have some drawback like stock- production0 something else-

almost all zero cards have some downside

The card as it is now ignores attack cards that have the terminology "enemy tower: -x". Not sure if that also includes "enemy wall: -x"

Attack cards do not include enemy "enemy tower: -x" and "enemy wall: -x" cards. So it works as intended.

Then the card has become utterly useless. I have to remove it from my deck.

Well, if you want to see which cards exactly does it effect, you just need to go to deck section and adjust card filters as is described on the card. You will see that there is quite a lot of cards that this card can discard.