Switzerland Publicly Questions Fractional Reserve Banking System

In this interview with mises.org, Claudio Grass helps explain the recent Swiss referendum to end the fractional reserve lending. The referendum known as the “Vollgeld Initiative” would require banks to hold 100% reserves against their deposits. In other words, commercial banks woud become ‘money warehouses’, holding physical and electronic currency.

Some background

Austrian economists say that central banking should be given up, that the market should decide, and that money should be treated as a commodity. The “Vollgeld Initiative”, however, says that the central bank should decide absolutely. This is the vision of the Swiss Money Movement which is behind the initiative, a loose coaliation of anti-capitalists and anti-banking groups that don’t want money to operate as a commodity. Also, they want the Swiss central bank and government absolute control on the money creation.

The Swiss sovereign money movement has an American ‘cousin’ known as ‘Greenbackers’, who also want sovereign control over money but through Congress directly instead of the central bank.

The “Vollgeld Initiative” comes on the back of another Swiss referendum in 2014 to have their central bank hold 20% of their reserves in physical gold. Propaganda driven campaigns resulted in a winning “no” vote. But the more important point is that Swiss people have a fascination with monetary policy. It is almost impossible to imagine that other Western countries or the U.S. would publicly debate monetary policy, and hold a referendum about this issue.

Highlights from Claudio Grass

Something about the political process, what is happening right now? They gathered more than 100,000 signatures, a minimum requirement for a official referendum. The initiative will be discussed in the Federal Council, and they must come up with a yes or no to the Parliament or a counterproposal. Within a timeframe of 2.5 years, the Parliament has to discuss and decide on it. The Parliament has no binding power, they rather bring a recommendation to the Swiss people, limited by a maximum timeframe of 10 months.

The movement is not libertarian inspired. Most of the campaigners have a background in social occupations, e.g. teachers, journalists, thinkers, politicians from left wing parties. So most of them are statists. Their main motivation is that banks are engaged in fraudulent activities, which are made possible by the fractional reserve banking system. That is certainly a common characteristic with the libertarian movement. The difference with the libertarians, though, is that they look into a solution within the state (centralization and nationalization).

From a libertarian standpoint, abolishing the fractional reserve banking is an important element of the vision. But there is a differentiation to be made. On the one hand, banks are needed in the system. But the point is the inflationary effect of creation ‘money out of thin air’, which banks can do by creating additional currency out of interests and savings accounts. Banks should keep the deposits safe, even if it comes with a fee. Depositors should at all times have access to their funds. Banks should compete with each other, and the free market should always have the last word in it.

There are some flaws, however, in the thinking of the “Vollgeld Initiative” campaigners. For instance, they believe that they can use the proceedings of money creation minus the printing cost When banks are creating bank notes. But the more important point is that the Swiss can debate these issues openly. It also shows that the Swiss people are unhappy with the current (economic and monetary) system.

Switzerland is the country where people are farming the highest amount of banking notes, as shown in a recent article on www.acting-man.com. So Swiss people ‘intuitively’ react on the ongoing developments by taking money ‘in’, proving that they do not like a cashless society. From an anecdotal point of view, Claudio Grass observes that people in his environment like to hold cash. Swiss people also hold a lot of physical gold.

Full interview

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