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Switzerland: Referendum on Sovereign Money Will Go to a Vote

(Jan. 20, 2016) On December 24, 2015, the Swiss Government announced that a proposed referendum on sovereign money had achieved the required 100,000 number of signatures to be put to a vote. In a sovereign money system, all physical and electronic money is created by the central bank and the commercial banks act only as intermediaries. The referendum would prohibit commercial banks from creating electronic money through lines of credit without using reserves to back the loan and would make the Swiss National Bank the only institution to be able to bring money into circulation.  (Eidgenössische Volksinitiative, “Für krisensicheres Geld: Geldschöpfung allein durch die Nationalbank! (Vollgeld-Initiative)” [Swiss Federal Popular Initiative “For Crisis-Proof Money: The Swiss National Bank as the Sole Institution to Create Money! (Sovereign Money Initiative)” (Dec. 22, 2015), BUNDESBLATT [BBl.] [FEDERAL GAZETTE] I 9651 (2015).) No date has been set yet for the referendum.  (Mehreen Khan, Switzerland to Vote on Banning Banks from Creating Money, TELEGRAPH (Dec. 24, 2015).)

According to article 99, paragraph 1, of the Swiss Constitution, the Confederation is responsible for money and currency and has the exclusive right to issue coins and banknotes. The Confederation has transferred the exclusive right to issue banknotes to the Swiss National Bank (SNB).  (Nationalbankgesetz [National Bank Act] (Oct. 3, 2003), SR 951.11, art. 4, Federal Council website (unofficial English translation).)

The initiative would amend article 99 of the Swiss Constitution to include the competence to create “electronic money” among the exclusive rights of the Swiss Confederation. (Bundesverfassung [BV] [Swiss Constitution] (Apr. 18, 1999), SYSTEMATISCHE RECHTSSAMMLUNG [SR] [SYSTEMATIC COMPILATION OF LAWS] 101, Federal Council website (unofficial English translation).)

Background

Commercial banks are currently able to create electronic money through lending. Whenever a bank makes a loan to a customer, it adds the loan to its balance sheet as an asset and creates a matching deposit in the borrower’s account without using reserves to back the loan.  The advocacy group Sovereign Money Initiative contends that the ability of commercial banks to create electronic money circumvents the decision of the Swiss people to only allow the SNB to create money and causes instability in the financial system.  Under the terms of the referendum, commercial banks would be required to hold 100% reserves against their deposits.  They would only be able to act as an intermediary and lend money that they have received from their customers, other banks, and the SNB.  (Yes to the Swiss Sovereign Money Initiative!, at 2, Sovereign Money Initiative webpage (last visited Jan. 12, 2016).)

A similar proposal on sovereign money is under discussion in Iceland. (Frosti Sigurjonsson, Monetary Reform – A Better Monetary System for Iceland, Prime Minister’s Office website (Mar. 2015).)

Support for and Criticism of Sovereign Money Systems

Lord Adair Turner, former chairman of the Financial Services Authority of the United Kingdom and former chair of the policy development committee of the international Financial Stability Board, characterized a sovereign monetary system as “a radical structural solution” and added that “money creation is too important to be left to bankers alone.” (Id. at 8.)  Critics contend that a sovereign monetary system would increase the potential for political favoritism.  (John Miller, Swiss Group Says It Has Signatures for ‘Sovereign Money’ Vote, REUTERS (Oct. 31, 2015).)