Swiss referendum call people to decide on monetary policy

On June 10 there will be a referendum in Switzerland, something which is quite usual in this confederate State. But this one is particularly interesting. In this country, famous for its banks, the citizens will be consulted on a very sensitive issue: money.

The promoters have managed to achieve the conditions established by the Swiss Constitution to hold the referendum. It is being driven by the NGO Monetäre Modernisierung (monetary modernisation), also known as MoMo, and its slogan is Vollgeld (sovereign money according to the English version of its website). 

If the referendum is successful, the Swiss Constitution would be modified to include an important change: a monetary reform. Its success is complicated because the central bank, Parliament and the banking sector are against it. But the fact the referendum is being carried out is a victory for its supporters and fuels a debate which is gaining momentum at an international level.

Under the current monetary system, money available to society (monetary supply or M1) is defined as the sum of the notes and coins in circulation plus demand deposit accounts in private banks. The State creates the notes and coins via its central bank, but the digital money which appears in citizens and companies’ bank accounts is basically created by the banks every time they grant a loan. The money supply, available money or money in circulation, is reduced every time a loan is amortised or the central bank withdraws notes and coins from circulation. The current proportion of these two components in the money supply is: 10% notes and coins and 90% digital money in bank accounts.

“The initiative would introduce several fundamental changes to the Swiss constitution. It would declare that money is not debt, and that the SNB could distribute funds to the state or directly to households,” Philippe Bacchetta, a professor at the Swiss Finance Institute, wrote for Vox EU.

If such an initiative passed, it could lead to advocates of a similar system in other nations to cause for change, possibly causing a ripple through the global financial system.

Switzerland is a nation famed for its referendums, holding votes on everything from getting rid of TV licensing, all the way to its notorious, and highly controversial, vote to ban the building of minarets, but the sovereign money vote – scheduled to be held on June 10 – could be one of its most significant ever.

While Vollgeld is aggressively lobbying for the change, Switzerland’s major institutions are strongly opposed, with the SNB publishing a detailed argument against such an initiative.

“There is no fundamental problem that needs fixing. A radical overhaul of Switzerland’s financial system is inadvisable and would entail major risks,” it said, noting that the Federal Council – the country’s government – is also opposed to the plans.

“Today’s decentralised system is both customer-focused and efficient. Competition between banks ensures favourable interest rates and high-quality, modern and low-cost services,” the SNB adds.

Another issue likely to arise from the introduction of sovereign money is that borrowing in Switzerland would likely grind to a halt, as banks would be unable to create new capital on their balance sheets to fund such borrowing.

Many do not believe the vote should even be held, with Bacchetta saying that: “The motivation and the specifics of the proposed reform in Switzerland have abstracted from current knowledge in economics.”

“It is a weakness of the Swiss democratic system that citizens can vote on economic initiatives in the absence of this type of analysis.”

In Switzerland, referendum questions need 100,000 supporting signatures to be put to a general vote. A vote is only considered valid if more than 40% of the population takes part. To win, you need a majority of the voting population and a majority in the number of cantons, or regions, that support the change.

The Vollgeld proposal is not new. Since the Great Depression there have been other similar ones, although not identical. The most famous one was that of Irving Fisher, along with a group of economists in 1936, known as the Chicago Plan. It was presented to President Roosevelt but was never approved.