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Swiss Unlikely To Buy ‘Sovereign Money’ Proposal


By Matthew Allen

Voters look set to reject a radical overhaul of the Swiss financial system that calls on the central bank to take total control of money supply and bring commercial bank lending under tighter control.

The ‘sovereign money’ initiative may have captured the imagination of economists and the foreign media, but opinion polls suggest that little more than a third of Swiss voters on Sunday will support the plan.

The initiative calls for all credit issued by commercial banks to be backed with real money created by the Swiss National Bank (SNB). The central bank would issue loans to commercial banks to underpin the credit they extend to individuals and businesses.

At present, only a portion of commercial bank lending is backed by actual money. The rest of the loan exists on paper, creating a large pool of non-central bank issued ‘money’ – around 90% of the total supply in Switzerland, according to the sovereign money camp.

Proponents of the initiative fear another financial crisis if too many debtors default, as happened in 2008. Forcing commercial banks to cover every franc of credit they generate would make them think twice about issuing too much. This in turn would protect the economy against boom and bust cycles, bank collapses and customer deposits being burned, the argument runs.

Arguments against

The proposal has been rejected by the Swiss government, the SNB and a number of influential banking and economic associations – in short, the establishment. Critics say it would strip away an important revenue stream for commercial banks, making them less likely to give credit in future.

They also say the initiative fails to give proper recognition to a number of measures already taken to make banks safer.

The SNB says the sovereign money system would be unwieldly to implement, could bring into question its political independence and deflect the central bank from its mandate of achieving price stability.

Pollsters say voters appear to have paid more attention to the “no” camp arguments. The initiative only has broad support from leftwing political party supporters and people in the French-speaking part of the country. Crucially, younger voters and those on lower incomes are against the idea.
Lingering scepticism

But even if the polls are right, the very fact that the initiative has made it as far as a vote signifies a lingering resentment towards bankers following the financial crisis a decade ago, says Martin Brown, a professor of banking at the University of St Gallen.

“This shows that people are still very sceptical about banks,” he told “They have the general impression that banks are just in it for the money rather than providing a valuable service to society.”

Brown believes the sovereign money initiative is a misplaced outlet for dissatisfaction with the banking system because it misses the real cause of the financial crisis – the fact that banks stopped lending to one another. But, irrespective of the vote result, at least it has brought such discontent out into the open, he says.

“Even if we solve the problem of banking stability, the issue of negative public opinion towards the sector still needs to be addressed,” he said. “The industry needs to concentrate harder on trust building measures in order to convince the population.”

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swissinfo is an enterprise of the Swiss Broadcasting Corporation (SBC). Its role is to inform Swiss living abroad about events in their homeland and to raise awareness of Switzerland in other countries. swissinfo achieves this through its nine-language internet news and information platform.

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