Making Money: The Swiss Referendum

By Guy Brandon 06 Jun 2018

A poll on the 10th June will decide whether Switzerland should change to a ‘sovereign money’ system – effectively abolishing fractional reserve banking.

This Sunday, the Swiss will vote on the ‘Vollgeld’ measure, proposed with the intention of making the banking system safer by preventing commercial banks from creating money. Only the central bank, the Swiss National Bank, would be able to increase the money supply.

Referendums are allowed in Switzerland if just 100,000 signatures are collected for a proposal, meaning that controversial topics and those opposed by most politicians and government can still be decided by a national vote.

The Vollgeld proposal would restrict the money commercial banks lend out to what they have in savings accounts, what they acquire on the international money markets or from the SNB. It would effectively mean the end of fractional reserve banking in Switzerland. Proponents of the changes say that it is the commercial banks’ ability to create money that leads to boom-and-bust credit cycles, including the Global Financial Crisis. Critics – including the SNB’s Governor, Thomas Jordan – say it will lead to a more volatile and possibly even stronger Swiss franc.

The referendum has not received widespread publicity outside of Switzerland. Monetary reform in general receives little attention, despite the fact that it is a major factor in the health of the wider economy. Few people understand the way money is created and curated, partly because the process has become so complex.

‘If you wish to remain the slaves of Bankers and pay the cost of your own slavery, let them continue to create money and control credit.’ – Attributed to Josiah Stamp, director of the Bank of England, by Silas W. Adams in The Legalized Crime of Banking (1958)

The serious and fundamental injustices represented by our current monetary system are explored in our booklet, Crumbling Foundations: A biblical critique of modern money. The Bible warns against centralisation of any power – whether political, technological or financial – and our centralised, debt-based approach powerfully illustrates the reason why. Money can be created at will by the central bank, and monetary policy explicitly targets 2% inflation – eroding the value of savings and meaning that debts, including government debts, are not paid in full. Debt-based money necessarily requires the payment of interest, something else the Bible warns against. This sucks value out of the real economy and into the financial sector, helping drive long-term poverty and entrenching inequality. At the same time, there is moral hazard: banks receive the profits of the money they create out of nothing, but the public is forced to shoulder the costs in the event of a financial crisis, since the payments system is too important to allow to fail.

Thus at a basic level there is a conflict of interests. For the end user (us), money is a means of transacting and saving. For the creators of money (the central and commercial banks), it is a way of acquiring value at our expense. The means by which this is carried out are frequently opaque and undemocratic.

Recent indications are that only a third of Swiss will vote for the Vollgeld measure, but the effect of an agreement for reform would be seismic. It would change banking as we know it in the country and probably further afield, arguably returning it to a more honest, fair and safe system.

 

For more on this topic, see: Crumbling Foundations: A biblical critique of modern money.

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