Swiss voters reject radical sovereign money initiative

A file photo of a member of the sovereign money initiative offering flyers to travellers at the central railway station in Zurich, on May 3, 2018.
A file photo of a member of the sovereign money initiative offering flyers to travellers at the central railway station in Zurich, on May 3, 2018. PHOTO: REUTERS

ZURICH • Swiss voters probably dismissed a radical proposal to overturn one of the financial system's core tenets. The so-called sovereign money initiative, or "Vollgeld", would have ended the system of fractional reserve banking that's been around for centuries by allowing only the Swiss National Bank to "create" money.

But the initiative is set for rejection, according to an early projection from Swiss television SRF. Official results of the plebiscite were due later yesterday.

While polls had suggested "no" was likely, the fact supporters were able to muster the 100,000 signatures necessary to put it on the ballot is testament to the ongoing distaste about the financial industry still palpable a decade after the financial crisis.

While that was sparked by the collapse of Lehman Brothers, Switzerland did not escape, and was forced in 2008 to bail out UBS, its biggest bank. Proponents of Vollgeld argue that by putting the central bank solely in charge of steering the amount of money in the economy, there would be more safeguards to prevent the kind of asset price bubbles that caused the 2008 financial crisis.

While the movement has gained the most prominence in Switzerland, thanks to its system of direct democracy, it has also found favour in other countries, such as Germany and the UK.

Yet critics, notably the Swiss government and the SNB, campaigned against the plan, saying it could cripple the economy and politicise monetary policy. "This is basically trying to do away with one of the major types of instruments that we've seen in banking for hundreds of years," said Professor Martin Brown from the University of St Gallen.

Were the measure to pass, banks would have to adjust their business models and "look for funding from other sources", he said.

Plebiscites and referendums are a key feature of Switzerland's tradition of direct democracy, with votes on a wide variety of topics ranging from licence fees for the public broadcaster to immigration quotas and even public defenders for mistreated animals taking place several times a year.

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A version of this article appeared in the print edition of The Straits Times on June 11, 2018, with the headline 'Swiss voters reject radical sovereign money initiative'. Print Edition | Subscribe