Swiss Review 2/2018

10 Swiss Review / March 2018 / No.2 Politics JÜRG MÜLLER What is money? Coins and banknotes, obviously. However, it also comes in other forms, such as book money, which is primarily created when banks grant loans. There are also bank accounts. The money held in these ac- counts is not real money, but merely something that entitles the customer to demand cash from the bank when required. Time is also money, as we have known since Benjamin Franklin published “Advice to a Young Trades- man” in 1748. Money is almost as dif- ficult to define as time. And there are good reasons to consider the nature of money at the present time. On 10 June, the Swiss electorate will vote on the Sovereign Money Initiative, whose of- ficial title is: “For crisis-safe money: money creation by the National Bank only!” This says quite a lot, but what exactly is sovereign money? For example, a commercial bank lends somebody 10,000 Swiss francs and credits the amount to the custom- er’s current account. The bank has ef- fectively simply created money from nowhere, so to speak. However, this is book money. Today, book money con- sists primarily in digital form and is muchmore abundant than cash. Coins and banknotes account for only about 10% of the legal tender in circulation, while 90% is electronic money “that the banks create themselves at the touch of a button”, as the authors of the initiative write on their homepage. Now the initiative wants only the Na- tional Bank to be allowed to create digital money so that it also has the monopoly on book money. This situation already exists for cash. After all, commercial banks can’t mint coins or print banknotes. If the initiative were approved, they could continue their transactions and issue loans. But they would be forced to cover them fully through equity cap- ital, savings deposits or loans fromthe National Bank. A crisis-proof financial system? According to the initiative’s authors, the introduction of sovereign money would make the entire financial sys- tem more crisis-resistant and fairer: “Sovereign money held in payment ac- counts is as secure as cash because it is real money from the National Bank. Bank collapses would have no effect on it. The rules would once again be the same for everyone, banks and companies as well as large and small banks,” explains the homepage of the group behind the initiative. Above all, the money belongs “to the account holders and is not lost if a bank gets into trouble”. The initiative’s authors promise even greater things, namely a wind- fall: a welcome consequence of the sovereign money initiative is that the National Bank would be able to pro- vide the Federal Government and the cantons with an additional 5–10 bil- lion Swiss francs a year, simply from the proceeds of the creation of money. Aside for coin production, such reve- nue-generating opportunities have not been used up to now – not even by commercial banks – for systemic rea- sons. The group behind the initiative believes the sovereign money reform could harness this previously un- tapped potential. They also say that it would eliminate the risk of financial crises as the current money-creation system forces debt to be incurred through the issuing of loans. No new money is created today without new debt. Aheavily indebted society is vul- nerable in the event of financial crises. The initiative wasn’t started by any political party or well-known or- ganisation, but by the Monetary Mod- ernisation association, whose execu- tive board is made up of largely unknown figures.What is remarkable is that the popular initiative is backed bymany economists – evenprominent ones – at various universities, includ- ing the University of St. Gallen, a pres- tigious training ground for econo- mists. Opposition across the political spectrum However, the initiative has met with fierce opposition from politicians. All the parliamentary groups have re- jected the popular initiative in Parlia- ment, even though the Social Demo- cratic Party (SP) and the Greens agree with certain aspects of it. A left-wing and Green minority tabled a counter- proposal, but without success. As SP National Councillor Beat Jans ex- plained, the counterproposal picked up on the issue of financial stability and called on the Federal Constitution to be amended to insist that “our ma- jor banks must have sufficient equity capital to get themselves out of diffi- culty if theymess upwhile playing the market”. However, even the SP re- jected the initiative, using the argu- ment put forward by almost all speak- ers: the risks are too great because it has never been tried. SP National Councillor and economics expert Su- sanne Leutenegger Oberholzer re- marked: “There is not an economy an- Sovereign money: a complex popular initiative The Swiss National Bank isn’t the only institution that issues money. Commercial banks are also involved in its creation. A popular initiative that will be put to the vote on 10 June aims to prohibit that.