Sovereign Money Isn’t Dead, Even If the Swiss Reject It
Countries that have experienced a systemic banking crisis would be more suitable for a successful test.
See you on Sunday.
Photographer: Fabrice Coffrini/AFP/Getty Images
On June 10, Swiss voters are likely to reject a referendum proposal to strip private banks of the ability to create money. But even if it fails now, the idea of “sovereign money” (or “Vollgeld” in German) won’t die. It’s worth considering where the experiment could take place and in what form.
The basic idea of Vollgeld is to make sure money no longer comes in the form of debt — that is, a liability booked against an asset, as when a bank issues a loan. In the Swiss proposal, the central bank would control the money supply and become the keeper of all checking accounts, which would no longer pay interest. The Swiss National Bank would then distribute the money it creates to local government and directly to citizens. Typically, banks lend far more money than they keep in deposits. The new plan would have the same effect as requiring them to hold 100 percent reserves against loans: The risk of bank runs should theoretically be eliminated and the financial system should be rock-solid.