Switzerland to vote on banning banks from creating electronic money
Switzerland to vote on banning banks from creating money
Referendum on radical proposal to give central banks sole
money creation power will be held after petition gains 110,000 signatures
90pc of all money in circulation in Switzerland is
"electronic" money
By Mehreen Khan 5:00PM GMT 24 Dec 2015
Switzerland will hold a referendum to decide whether to
ban commercial banks from creating money.
The Swiss federal government confirmed on Thursday that
it would hold the plebiscite, after more than 110,000 people signed a petition
calling for the central bank to be given sole power to create money in the
financial system.
The campaign - led by the Swiss Sovereign Money movement
and known as the Vollgeld initiative - is designed to limit financial
speculation by requiring private banks to hold 100pc reserves against their
deposits.
"Banks won’t be able to create money for themselves
any more, they’ll only be able to lend money that they have from savers or
other banks," said the campaign group.
Under Switzerland's direct democracy, a referendum can be
held if a motion gains 100,000 signatures within 18 months of launching.
If successful, the sovereign money bill would give the
Swiss National Bank a monopoly on physical and electronic money creation,
"while the decision concerning how new money is introduced into the
economy would reside with the government," says Vollgeld.
The idea of limiting all money creation to central banks
was first touted in the 1930s and supported by renowned US economist Irving
Fischer as a way of preventing asset bubbles and curbing reckless lending.
In modern market economies, central banks control the
creation of banknotes and coins but not the creation of all money, which occurs
when a commercial bank offers a line of credit. Central banks aim to influence
the money supply with monetary policy and regulatory tools.
The SNB was established in 1891, with exclusive power to
mint coins and issue Swiss banknotes.
But over 90pc of money in circulation in Switzerland now
exists in the form "electronic" cash created by private banks, rather
than the central bank.
"Due to the emergence of electronic payment
transactions, banks have regained the opportunity to create their own
money," said the Swiss Sovereign Money campaign.
"The decision taken by the people in 1891 has fallen
into oblivion."
Referenda on monetary matters are not new in Switzerland.
Last year, the country voted by more than 78pc to reject a law calling for the
central bank to increase its gold reserves from 7pc to 20pc.
Unlike the gold vote - which was seen as a precursor to
re-introducing the Gold Standard in Switzerland - economists have been more
supportive of the idea of "sovereign money" as a way to stabilise the
economy and prevent excess credit growth.
Iceland - which saw its bloated banking system collapse
in spectacular fashion in 2008 - has also touted an abolition of private money
creation and an end to fractional reserve banking.
A date for the Swiss referendum has not been set.
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