1226 GMT June 20, 2018
In a referendum on Sunday, just 26 percent supported plans to strip banks of their ability to “create” money when giving loans to consumers and businesses, according to projections based on early results, Financial Times reported.
The results will come as a relief to Switzerland’s finance sector and to the Swiss National Bank, the central bank. Thomas Jordan, SNB chairman, warned ahead of Sunday’s vote that the Vollgeld, or “sovereign money,” initiative would be “an unnecessary and dangerous experiment, which would inflict great damage on our economy.”
Opinion polls had shown stronger support for the initiative. Under Switzerland’s system of direct democracy, just 100,000 signatures are required to trigger a referendum.
The Vollgeld plan would have abolished “fractional reserve” banking – the basis of financial systems around the world, under which only a fraction of deposits held by banks on behalf of customers are backed by notes and coins or banks’ deposits at the central bank.
In addition, the SNB would have had the authority to allocate central bank money to the government – or even directly to the public.
Backers argued that this would have made Switzerland’s financial system safer by reducing indebtedness and preventing boom-and-bust credit cycles. They also argued money was a “public good,” which should be controlled by a state institution such as the SNB.
Vollgeld’s backers reckoned 90 percent of Swiss money was created electronically.
However, they faced stiff opposition from Switzerland’s main political parties and bankers.
Sergio Ermotti, chief executive of UBS Bank, said voters would have to be “suicidal” to vote for it. The SNB also dropped its usual political neutrality to campaign vigorously against the proposal.
Pressure for reform of fractional reserve banking has grown since the global financial crises of 2007-2008, with proponents of changes including Mervyn King, former governor of the Bank of England.
The Vollgeld proposals were similar to ideas that emerged in the US in the 1930s, in the wake of the Great Depression. In 1935, the economist Irving Fisher proposed a “100 percent reserve banking” system to eliminate bank runs, smooth economic cycles and reduce indebtedness.
Switzerland’s frequent referendums mean the affluent Alpine economy has often served as a test of public support for radical ideas.