A year ago (and just two months before the shocking announcement ending the Swiss Franc's peg to the Euro which dramatically revalued the currency and led to massive FX losses around the globe and for the Swiss National Bank) the Swiss held a referendum on whether to demand that their central bank convert 20% of its reserves into gold, up from 7% at the time. The referendum failed dramatically.
Now Switzerland is scheduled to hold another referendum, one which would strip commercial banks of their power to create money and have all money created only by the Central Bank, a move that would in essence ban fractional reserve banking and revert to a 100% reserve.
The Swiss government confirmed on Thursday that it would hold the plebiscite, after more than 110,000 people signed a petition calling for the changes. Under Switzerland's direct democracy, if a motion gains 100,000 signatures within 18 months of launching, a referendum can be held and over 110,000 signatures have already been gathered for this vote.
The campaign for reform, which is being led by the Swiss Sovereign Money movement is known as the Vollgeld initiative (named after the man who introduced it) and is designed to limit financial speculation by requiring private banks to hold 100 percent reserves against their deposits. Banks won’t be able to create money for themselves any more, but will still be able to lend money that they have from savers or other banks.
Switzerland is scheduled to hold another referendum, one which would strip commercial banks of their power to create money and have all money created only by the Central Bank, a move that would in essence ban fractional reserve banking and revert to a 100% reserve
The way the current financial system works now, private lenders create most of the money in circulation. Every time they issue a loan, they set up a matching deposit in the borrower's name, and since banks are only required to hold some 10 percent reserves against such claims, 90 percent of the deposits constitute new money. Central banks only influence the process through regulation. What the authors of the Swiss initiative want is a situation in which the Swiss National Bank becomes the sole creator of money. Under such a system, private banks would only serve as intermediaries for citizens and businesses.
Physical and Electronic Money
If the referendum is successful, only the Swiss National Bank would be able to create physical and electronic money while the decision concerning how new money is introduced into the economy would remain with the government.
In actual fact, the referendum seems more concerned with the electronic money than the physical cash. The SNB was established in 1891with exclusive power to mint coins and issue Swiss banknotes but over 90 percent of the money in circulation in Switzerland now exists in the form "electronic" cash created by private banks, rather than the central bank.
The wording of the Swiss Sovereign Money campaign states that "Due to the emergence of electronic payment transactions, banks have regained the opportunity to create their own money."
According to the Telegraph, unlike the gold vote - which was seen as a forerunner to re-introducing the Gold Standard in Switzerland - economists now are more supportive of the idea of "sovereign money" as a way to stabilize the economy and prevent excess credit growth.
If the vote passes, barring Swiss Banks from creating deposits (by way of loans), it would have a major effect on the entire modern financial system, which these days is exclusively reliant on runaway fractionalization of sound money. According to the Vollgeld initiative, with sovereign money the Swiss Franc will become the safest currency in the world and will encourage a higher standard of quality controls in the financial industry, “as is normal for industries in the real economy.”
After a sovereign money reform, banks will no longer be able to trade with money they have created for themselves and this will most likely lead to a reduction in the number of people employed in investment banking which in turn should create a safer bank job experience.
A date for the Swiss referendum has not yet been set.