Daily Management Review

Will Switzerland regain control over currency issuance?


06/06/2018


The forthcoming referendum in Switzerland may be aimed at a radical transformation of the world finance industry.



pixabay
pixabay
On Sunday, Swiss voters will go to election stations to vote for or against to switch to the sovereign monetary system.

The referendum has attracted international interest, since it reflects discussions of economists and legislators after the global financial crisis of 2008. Supporters of the "Sovereign Money Initiative" (SMI) argue that its implementation will secure the banking system by not allowing bankers to carry out reckless lending and to put people's savings in risky conditions.

This can be explained by the fact that the change will complicate issuing loans with an effective cash issue for the commercial banks. The National Bank of Switzerland (SNB) will become a monopoly supplier of the country's currency.

Nevertheless, opinion polls showed that SMI may not gain enough votes. It is expected that more than half of the electorate will disapprove the plan, which Thomas Jordan, the SNB Governor, called a "dangerous cocktail."

Sergio Ermotti, UBS chief executive, supported Jordan's idea of voting last month. He said to reporters: "I do not expect the Swiss people to be suicidal and approve of it."

It is expected that the Swiss bankers will vote negatively in the upcoming referendum. This can be explained by the widespread opinion that this measure threatens the business models, and can put Bern at a disadvantage and also reduce economic growth.

In practice, this initiative may finish a partial reservation system - the basis of lending around the world, thanks to which banks "print" money every time they approve a loan.

The SMI will force the country's banks to completely revise current business models, which, given the importance of banking in the country, will have a significant impact on its economy.

About 85% of the money in circulation in Switzerland is now considered digital money created by banks.

The situation in which the supporters of SMI express their claims is rather unstable. One of their proposals is to change the very system of finance, forcing people to save money on risk-free sovereign cash accounts. After that, banks will be able to provide money that they manage on accounts, or those that they could receive in the money market or in the central bank.

SNB opposes this measure, despite the fact that champtions of the campaign argue that the central bank ought to be allowed to re-establish the constitutional role.

Nevertheless, the head of the SNB, Thomas Jordan, said that the scheme, which has not been tested yet, would be a jump into the unknown. S&P Global Ratings told on Thursday that although they are not expecting that the initiative of the sovereign monetary system will receive a majority of votes, a positive vote can affect the "creditworthiness" of Swiss banks.

source: cnbc.com







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