Swiss citizens are going to vote on 10 June on the introduction of “Vollgeld intiative”, promoting a sovereign money system and according to polls, public opinion is still largely vacillating, but the SNB President insisted on the useless and dangerous nature of the initiative, notes Charlotte de Montpellier, Economist at ING.
Key Quotes
“Long story short, promoters want to withdraw from banks the ability to create money by giving to the Swiss National Bank (SNB) alone the responsibility to create both bank notes and electronic money. The high technicality of the topic gives a hard time to supporters and opponents in explaining the arguments in a simple way to the population. In this context, the SNB which, like the Federal Council and Parliament, is strongly against the initiative, is putting efforts to share some clear argumentation about the possible impact of a “yes” vote.”
“For the SNB, it is a “no”…
Promoters of the initiative believe Switzerland will be able to benefit from seigniorage on scriptural money creation, which is an unused resource in today’s system. These additional resources could then be used to reduce the burden on citizens through ‘debt-free’ payments by the SNB to the Confederation, the cantons or the people. But according to Thomas Jordan, these resources would only replace today’s SNB revenues brought by yield profit on foreign currency purchases, investments, or on banks loans granted. “Under established practice today, the SNB distributes the interest on its capital, while under a sovereign money system it would be selling off the capital” says Jordan. He thus thinks that “‘Debt-free’ payments would not make the country any richer”.”
“The initiative’s authors also believe it would avoid bank runs (which is highly debatable) and “too big to fail” problems as well as prevent the creation of financial bubbles. But Thomas Jordan thinks sovereign money would not help to eliminate the risk of instability. He explained that, “even without recourse to sight deposits, banks can grant loans which are too risky, hold too few provisions for times of crisis and become insolvent if a bubble bursts”. Moreover, a sovereign money system would not eliminate the risk of having banks too reliant on short-term financing from the money market.”
“… For public opinion, it is more a “don’t know yet” mood
Is the initiative going to get enough public support to be enforced? Well, there’s nothing sure for now but we got last week some indications about the result of the popular vote. According to a survey conducted by the Research Institute gfs.bern on behalf of the public broadcaster SSR[1], only 35% of those polled said they would slip a yes in the ballot box on June 10, against 49% who would vote no. The remaining 16% is still undecided.”
“Then, what would happen?
We believe that abstention will be the major winner of the referendum, but that a majority will still reject the proposal. Our baseline scenario considers thus that the monetary system won’t change any time soon.
However, the risk is still worth flagging. Indeed, a “yes” for the reform on the 10th of June would require a complete overhaul of the current monetary system. It would cause insecurity and could harm the financial center and, thus, Switzerland as a whole. It is almost impossible to anticipate the consequences of such an experience on the Swiss economy for now. But in a first instance, it would probably lead to a further weakening of the CHF.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD under pressure below 1.0400 on persistent USD strength
EUR/USD remains deep in the negative territory below 1.0400 on Tuesday, erasing a portion of Monday's gains. The pair is undermined by risk aversion and the persistent US Dollar demand, fuelled by US President Trump's tariff threats.
GBP/USD stays below 1.2300 after UK employment data
GBP/USD stays under bearish pressure and trades below 1.2300 on Tuesday as the USD preserves its strength following US President Trump's tariff threats. The data from the UK showed that the ILO Unemployment Rate edged higher to 4.4% in the three months to November.
Gold trades at multi-month highs above $2,720
Gold gathers bullish momentum and trades at its highest level since early November above $2,720 on Tuesday. The benchmark 10-year US Treasury bond yield is down more than 1% below 4.6% following US President Trump's tariff threats, helping XAU/USD hold its ground.
Bitcoin fails to sustain the $109K mark after Trump’s inauguration
Bitcoin’s price steadies above the $102,000 mark on Tuesday after reaching a new all-time high of $109,588 the previous day. Santiment’s data shows that BTC prices quickly corrected, as social media showed major greed and FOMO among the traders in Bitcoin after President Donald Trump’s inauguration.
Prepare for huge US trade changes as Trump goes America first
You can be sure that big changes are coming as far as US trade is concerned, even if we didn't get any new tariffs on President Trump's first day in office. A comprehensive investigation into US trade relationships was initiated via a memorandum. China, Canada, and Mexico are clearly in the immediate firing line.
Trusted Broker Reviews for Smarter Trading
VERIFIED Discover in-depth reviews of reliable brokers. Compare features like spreads, leverage, and platforms. Find the perfect fit for your trading style, from CFDs to Forex pairs like EUR/USD and Gold.