Swiss Vote on Monetary System

Swiss voters have the option of ending the modern credit money system controlled by banks and replacing it with a government controlled fiat money system.

CNBC: Switzerland is set to vote on a radical 'sovereign money' plan: Here’s what you need to know

Supporters of the initiative, known as the "Vollgeld" or the Sovereign Money Initiative (SMI), say approving the measure would make the financial system safer by preventing bankers from recklessly lending and putting people's savings at risk — again.

That's because the change would make it much harder for commercial banks to extend credit, effectively creating cash. Instead, the Swiss National Bank (SNB) would become the monopoly provider of Swiss francs.

However, opinion polls indicate SMI will not receive enough votes to pass. Around two-thirds of the Swiss electorate is expected to vote against the plan, which SNB Governor Thomas Jordan has described as a "dangerous cocktail."

This replacement doesn't sound like a great idea.

Martin Wold at FT supports change: Why the Swiss should vote for ‘Vollgeld’

So how does this industry create mayhem on this scale? And why is it allowed to do so? It does so — and is allowed to do so — because, as the Bank of England has explained, banks create money, which is an essential public good, as a byproduct of their lending, which is an important economic good. We want banks to have risky assets and safe liabilities. Yet the liabilities of a highly leveraged, risk-taking institution cannot be safe and will unavoidably seem least safe during a crisis. Yet it is then that people want their money — their reserve of purchasing power in a frightening world — to be at its safest.

Worse, it is often easiest for banks to justify lending more just when they should lend less, because lending creates credit booms and asset-price bubbles, notably in property. The willingness of the public to treat bank liabilities as stores of safe purchasing power provides stable funding, until panic sets in. To reduce the likelihood of panic, governments insure bank deposits, liquidity and even solvency. That makes crises rarer, but bigger. The authorities are simultaneously supporting banks and reining in the excesses created by support. This is a system designed to fail.

There are many other ideas in this broad area that seem worth pursuing. One would be to allow every citizen to hold an account directly at the central bank. The technological reasons for branch banking are, after all, perishing quickly. Nicholas Gruen, an Australian economist, has argued that no private institution should have better access to the public’s central bank than the public itself does. Furthermore, he adds, the central bank could operate monetary policy by lending freely against safe mortgages. The central bank would not need to lend to banks per se at all. It would focus on assets.

This last idea would quickly end immigration in many countries, since expanding the population would dilute ownership claims. One solution on the way from private markets will be a similar approach through the blockchain. The money supply and "central bank" such that such an entity exists, will be privately owned. Anyone will be able to buy a share, but those without a stake in the system will have no shares, or at least no voting rights.