In just under two weeks, the Swiss will go to the polls to vote on the sovereign money initiative, which provides for a far-reaching reform of the country’s monetary system. According to this initiative, the creation of money supply would be the sole responsibility of the central bank in the future The commercial banks’ book money, which represents the lion’s share of money supply in circulation, would be abolished. The advocates of sovereign money believe this would create a safer and more stable financial system. Additionally, it would strengthen the central bank’s position vis-a-vis the commercial banks and extend its scope. A second, key stipulation of the initiative is the “debt-free” issuance of new money. This would produce national wealth that is conservatively estimated at CHF 300bn, which could be disbursed to the state and its citizens over the next 30 years.
Given the advantages mentioned, such as strengthening the central bank and billions of Swiss francs for the state coffers, it is surprising that both the Swiss National Bank and the federal government have clearly positioned themselves against it. A key argument of the sovereign money sceptics is the assessment that there is no need for a far-reaching reform of the current system. Furthermore, not only are there better ways of making the financial system more stable, whereas the proposed conversion of the banking sector would even tend to make it more vulnerable to financial crises. According to the critics, the lack of practical experience would turn the sovereign money system into a venture with potentially incalculable consequences, with no significant advantages offsetting this risk. This also applies to the proposed creation of CHF 300bn from nothing. The debt-free issuance of central bank money would not create any new national wealth but would simply lead to a potential loss of confidence in the central bank.
Acceptance of the sovereign money initiative would fundamentally change Switzerland’s monetary and financial system, as well as its monetary policy. The outcome would be more power for the SNB and less influence for the commercial banks, even though several hundred billion francs in assets would certainly not appear from nowhere. It is questionable whether the advantages put forward by the advocates would turn out to be correct retrospectively – especially given the lack of past experience with such a system. On the other hand, there is no doubt that such a conversion would go hand in hand with risks. In a first response to a possible vote in favour of the sovereign money initiative, the Swiss franc is therefore expected to depreciate noticeably.