Sovereign Money Referendum: A Swiss Awakening to Fractional-Reserve Banking?

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by Ronan Manly, BullionStar:

On Sunday 10 June 2018, Switzerland’s electorate voted on a referendum calling for the country’s commercial banks to be banned from creating money. In a country world-famous for its banking industry, this was quite an interesting turn of events.

Known as the Sovereign Money Initiative or ‘Vollgeld’, the referendum was brought to the Swiss electorate in the form of a ‘Popular Initiative‘. The Sovereign Money referendum proposed that commercial banks in Switzerland should no longer be allowed to create money out of thin air as they currently do, and that in future only the Swiss central bank should have the power to create money. Sovereign money as a concept refers to money issued or created by a State or central bank.

Popular Initiatives
The initiative was launched and advocated by Swiss group called Monetäre Modernisierung (MoMo) which was established with the goal of bringing monetary reform to Switzerland in the form of a sovereign money proposal. According to the proponents of the proposal, the initiative was launched as a reaction to the financial crisis of 2008 and 2009, and the increasing levels of commercial bank created both public and private debt that have taken place since then.

Based on the official results of the Vollgeld referendum announced on Sunday afternoon, 24.3% of the turnout voted in favour of the initiative, with 75.7% of voters against. As opinion polls in advance of the referendum had suggested such an outcome, a majority endorsement of the Sovereign Money proposal had not been expected. However, with 1,821,835 valid votes cast in the referendum, 442,387 Swiss citizens did endorse the proposal, which is a sizeable number, and shows that at least in Switzerland, there is increasing unease about how money is created in today’s fractional reserve banking systems, and a growing unwillingness among the Swiss public for commercial banks creating money out of thin air.

With one of the most effective systems of direct democracy in the world, Switzerland is known for its frequent referenda on diverse aspects of Swiss law, and Swiss Popular Initiatives allow petitions to be activated by Swiss citizens to propose law changes. While there can be cantonal and communal popular initiatives in Switzerland, the Sovereign Money referendum was an initiative at the federal level, aiming to change wording in the Swiss Federal Constitution.

For a Federal popular initiative in Switzerland to get to the referendum stage, the initiative’s proponents must collect 100,000 valid supporting signatures from the Swiss electorate within an 18 month period. In the case of the sovereign money initiative, this signature collection exercise was completed in December 2015 when over 111,000 valid signatures were collected and submitted to the Federal Government enabling the proposal to move forward. Many Swiss popular initiatives never get beyond the signature collection stage as they do not attain sufficient support among the electorate. Therefore, the success of the sovereign money initiative in gaining strong initial support also shows that there was an appetite among the Swiss population to raise the commercial bank issue in the form of an official referendum.

As it was essentially proposing a ban on fractional-reserve banking by commercial banks and a return to a more sound money system, the sovereign money Initiative had garnered significant attention in the Swiss financial media in the run-up to the vote, and brings to mind a Swiss referendum which was held in 2014 on the subject of Switzerland’s gold reserves and its storage locations, which also gained similar widespread public attention at the time.

However, as the Swiss Federal Council (Government), the Swiss Parliament and Switzerland’s central bank, the Swiss National Bank (SNB), had come out against the sovereign money proposal, much like they did in the Swiss gold referendum in 2014, the positions of the establishment institutions of State undoubtedly helped sway Swiss public opinion away from voting in favour of the sovereign money proposal. Other vested interests such as the Swiss bankers Association, also, predictably, rejected the initiative.

Out of Thin Air
Although most people aren’t aware of it, the majority of money in today’s global financial system is created not by central banks, but by commercial banks. These commercial banks create money in essentially unlimited amounts when they lend money into existence, in other words, when they provide credit and create debt, which they then call an ‘asset’ on the asset side of their balance sheets.

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