Switzerland Votes Down “Sovereign Money” Referendum
Yesterday, Swiss citizens voted against a bill referred to as the ‘sovereign money’ (or Vollegeld in German) refferendum which would have prohibited commercial banks from issuing loans and lines of credit without sufficient collateral in cash reserves.
The bill had been drawing attention from the cryptocurrency community, as sovereign money has been compared to cryptocurrencies like Bitcoin as money free from any liability or debt booked against it.
In a recent Bloomberg article, Beat Weber of the Austrian National Bank, was quoted saying,
‘Projects like Bitcoin and Sovereign Money attract attention by suggesting that money is not safe unless it ceases to be a claim on an issuer. Instead, it should become a pure asset and be put under strict quantity control. Neglecting the inevitable dependence on others involved in holding money or any other non-consumable asset, the underlying idea is that commodity-like money would enable individual possession of money without dependence on an issuer which may suddenly become unable to make good on its promise.’
Should it have been passed, the sovereign money referendum would have given Switzerland’s National Bank (SNB) sole authority in all forms of “money creation”.
About 25% of the votes cast were in favor of the bill, while those opposing the bill, were of the opinion that the new legislation would put unnecessary strain on both the financial market and the SNB. Interestingly, the SNB itself opposed the bill, stating that that central banks shouldn’t be given the responsibility of managing an entire country’s money supply.
Reports also suggested that conservative Swiss citizens were not in favor of tinkering with the economy by employing radical economic experiments.
Supporters of sovereign money, however, point out that currently banks are lending out considerably more money in loans than they presently have in their reserves. This opens up the door to financial security risks leading to bank runs, or even potentially complete economic collapse. Supporters of referendums like the one proposed in Switzerland would have put an end to this risky practice by requiring banks to hold 100 percent of reserves against loans.
The issue on the need for sovereign money is a point of heavy contention among economists. While some feel that sovereign money ensures a country’s financial security, many mainstream economists consider money to necessarily require an undefined dimension of elasticity in the form of credit that adapts itself to the needs of the economy.
Recent events in Sweden tie themselves seamlessly into the complicated web of debate the modern world is currently undergoing surrounding how money is defined and where it gets its value. While government backed fiat currencies have spurred economies forward into modernity, fiat brings with it obvious conundrums that might only be fully appreciated should a financial disaster occur. Meanwhile, the question remains whether or not decentralized digital currencies like Bitcoin serve as solutions to the myriad of problems that come from a government controlled credit-based money supply.
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