Why sovereign money would hurt Switzerland
Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank
Swiss Institute of Banking and Finance at the University of St. Gallen (s/bf-HSG), Zurich, 03.05.2018
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The Swiss sovereign money initiative launched in the light of the experience drawn from the last financial crisis is to be put to the popular vote on 10 June 2018. The initiative raises unrealistic expectations, and adoption by the people and the cantons would have serious consequences for Switzerland, while also making it difficult for the Swiss National Bank (SNB) to fulfil its mandate. The SNB, like the Federal Council and Parliament, therefore firmly opposes the initiative. The proposed amendment to the Constitution is aimed at bringing about 'crisis-safe money' and a reduction in the burden on taxpayers. In addition, the authors of the initiative want to separate the creation of money from the granting of loans because they regard money creation by commercial banks as the main cause of financial crises.
The initiative's authors believe that a sovereign money system would enhance financial stability. However, there are other far more effective ways of limiting the macroeconomic risk of financial crises. They include capital and liquidity requirements for banks which have been significantly increased in recent years and macroprudential tools such as the countercyclical capital buffer. The initiative would also be unable to deliver on its promise to reduce the burden on citizens through 'debt-free' payments by the SNB to the Confederation, the cantons or the people. A sovereign money system would not turn the SNB into a cash cow. Switzerland's prosperity is determined not by the way money is created but by the output the country generates.
The Swiss sovereign money initiative not only promises more than it can deliver, it would also have profound implications for Switzerland. Sovereign money would throw grit in the gears of our credit system and would impact borrowers as well as savers. It would reduce consumption, investment and ultimately prosperity in our country. A sovereign money system would also hamper implementation of the SNB's monetary policy. For instance it is doubtful whether, under a sovereign money system, the SNB would be able to react as resolutely as it did in the last financial crisis. The initiative is also fraught with risks in that it imposes a burden of responsibility on the state and the SNB that makes little sense from an economic order perspective and would blur the lines between monetary and fiscal policy. The 'debt-free' payments included in the initiative would also politicise the SNB and complicate its task of ensuring price stability.
Adoption of the initiative would represent a tectonic shift in our proven monetary and economic system, which has developed over a period of many years. Sovereign monetary is an unnecessary and dangerous experiment which would inflict great damage on our country.