As many countries move to become cashless societies, Switzerland will vote on whether their central bank should be the only institution capable of creating money.

Author: Tiziana Barghini
Swiss National Bank 640

The question of who should create money is fundamental to every financial system, and the Swiss are challenging the current worldwide norm.

On June 10, Swiss citizens will be called to vote on whether commercial banks should or should not be allowed to create money. The government and the central bank, Swiss National Bank (SNB), have advised against changing the current rules and nothing will happen if a majority of voters follow their advice. However, the initiative stirred debate on how money is created and how banks operate, after years tainted by so many bank bailouts and speculative bubbles.

The Swiss referendum under the Vollgeld Initiative, also called the Sovereign Money Initiative, demands that only the SNB be allowed to create money. Commercial banks that in Switzerland—as elsewhere—set aside only a tiny amount of deposit for each loan would be asked instead to hold an equal amount of what they loan in funds deposited in their coffers.

“The arbitrary way in which commercial banks can create money leads to credit bubbles, an unstable financial system and excessive indebtedness,” the Vollgeld organizing committee says. “Electronic money brought into existence by commercial banks is displacing cash more and more. Currently, only 10% of the money in circulation in Switzerland—namely coins and banknotes—is brought into existence by the Swiss National Bank.”

Supporters, including dozens of German and Swiss economists and sociologists and well-known commentators such as Martin Wolf of the Financial Times, state that clamping down on the banking system this way would reduce instability.

Banks, led by the SNB, have expressed their opposition—as has the Swiss government. “Acceptance of the initiative would have serious consequences for the structure and the stability of the financial system, as well as the monetary policy of the SNB, and plunge the Swiss economy into a period of extreme uncertainty,” the central bank warns. “Switzerland would have a financial system which is … fundamentally different from that of every other country.”