‘You may have heard about the Swiss referendum to end fractional reserve lending by Swiss commercial banks. It’s a fascinating development, and another example of how average Swiss people can use the federal referendum process to force both the central legislature and the 26 cantons to consider citizen proposals– merely by gathering 100,000 signatures within 18 months.
We asked Claudio Grass, a good friend of the Mises Institute and a principal with the Swiss company Global Gold, to give us his perspective on the initiative as our Mises Weekends guest—you can listen here.
But first a bit of background is in order. The referendum, known as the Vollgeld initiative, would require banks to hold 100% reserves against their deposits. In effect, commercial banks would become money warehouses– albeit holding both physical and electronic currency–something many libertarians and Austrians have long favored.
But while the initiative sounds like a positive step toward ending the expansionary pressures of a now almost entirely fiat Swiss franc– and a happy development for libertarians who consider fractional reserve banks fraudulent–the reality in Switzerland is more complicated.
Austro-libertarians like Rothbard argue that we should end central banking altogether: let the marketplace decide what form money takes, how much of it is available, and what interest rates for borrowing it should be. Money is a both a medium of exchange and a commodity that is best supplied by the market.
By contrast, the Vollgeld initiative calls for giving the Swiss Central Bank absolute control over money creation. Money is too important to be left in the hands of even nominally private, profit-seeking commercial banks.
This is the philosophy of the Swiss Sovereign Money movement that’s behind Vollgeld, a loose coalition of anti-capitalist and anti-banking groups that certainly don’t want money to operate as a market commodity. Money, they argue, is so important that it must be issued and run only by the “sovereign”– a curious term in a country that has fully rejected monarchs and centralized power at least since its federal constitution was approved in 1848. It evidences, perhaps, the same kind of loyalist fervor for centralized state control that European subjects once showed for their Kings and Queens.
In this sense the Swiss sovereign money movement has an American cousin in modern-day Greenbackers. Greenbackers in the US also want monopolized control over money, but through Congress directly rather than a central bank. In fact, they got their start by having the Union government pay for its Civil War military buildup by issuing unbacked currency.
Today’s Greenbackers include former congressman Dennis Kucinich, and presidential hopeful Bernie Sanders is a fellow-traveler of sorts who favors favors Modern Monetary Theory. Greenbackers are populist, anti-capitalist, and at least nominally anti-Fed, who correctly see the confluence between central banks and commercial banks as an unjust enrichment scheme for Wall Street.
But enriching DC instead, by handing control over monetary policy from guileful central bankers to dimwitted members of Congress, is not the answer.‘