Switzerland to vote on banning banks from creating money

I agree that this seems like an unusually technical topic to subject to referendum.

See this Econtalk podcast on the topic: http://www.econtalk.org/archives/2015/12/noah_smith_on_w.htm...

That's a strange principle to hold, especially if it wouldn't apply to any other asset. People are generally free to own securities no matter how complicated their structure. But the fiat system seems to conveniently siphon lending power from account holders to account managers -- effectively centralizing economic planning to financial institutions by fiat.

Saying "central banking is good" is like saying "government is good". It definitely can be, but it can also be murderously oppressive. The question is, how did this economic decision maker come to be -- and why are they in control of your money instead of you.

How one can reach such conclusion is beyond me. People will discuss the question, and democratically decide. You'd be surprise the fierce debates that erupts among citizens when a serious question is on the table, and how everyone makes oneself enlightened before vote. This is what actual democracy is. This is how it should work everywhere for any serious issue.

Designating a cherry-picked representative who carries exactly zero obligation to hold his promises is NOT democracy, but elective oligarchy. Almost all countries calling themselves democracies certainly don't deserve the name.

Which countries were these?

If I said something about causal learning, I could point to Patricia Cheng as a keyword to Google. If I said something about dual systems of cognition in economic behavior, I could point to Daniel Kahneman or Jonathan Evans.

Point me in the direction where one can find this "hard science" with "laboratory tests", so that I may know these are not toy words you threw around.

This is in no way a proof. A good analogy, but not a perfect one, I agree, is looking at 2 companies where one of them has more capital and so it can undersell its competitor, using prices lower than its production prices. You might win the competition, but that's definitely not a a good system long term.

And another thing that I think is very important to keep in mind is that we went through 2 world wars quite recently, each one performing a reset of the system. It is very hard to say that we are on the right track when the system needs to crash and burn every couple of generations.

That doesn’t make any sense. Runs and crashes are an important part of the free market, keeping banks in reign. Fractional reserve banking would be impossible or very limited if runs and crashes were allowed to happen. This would result in non-inflationary currency, improved value of savings, and decreased volatility of the markets (extreme booms followed by extreme crashes and long periods of unemployment due to constant reallocation of resources in the society).

All of this is prevented by central banks.

> If successful, the sovereign money bill would give the Swiss National Bank a monopoly on physical and electronic money creation, "while the decision concerning how new money is introduced into the economy would reside with the government," says Vollgeld.

> But over 90pc of money in circulation in Switzerland now exists in the form "electronic" cash created by private banks, rather than the central bank.

EDIT: Formatting

That's true for nearly every subject. It's an argument against this referendum as much as it is against democracy in general.

Even representative democracy. Most people are certainly not experts at hiring executives. Seemingly even those whose job it is to hire and fire.

It surely has been positive in the past but that does not mean it is positive now or in the future.

We are entering a new era, where (economic) growth is no longer necessary for human development, due to automation and that an increasingly large percentage of innovation is in software. In a world of progress without growth, we cannot have an economic system that requires growth to function properly.

Instead, we need economic stability.

Voters are not experts on matters of laws, morality, ethics, psychology, sociology, or criminology. If it is tragic for this to be put to referendum, then most every referendum is tragic.

Measured in what, GDP? A relentless race to extract more and more resources from the earth and lay waste to countries in the process? Easy money only emboldens a race to the bottom for extraction of resources, not a holistic life for the world's population. Such banking only empowers a few.

Because it would still be legal for banks in every other country to loan out Swiss dollars with fractional reserve. (Or even with 0 reserve)

I bet France and Germany will soon be voting a 2% foreign bank tax and send a box of flowers to every Swiss citizen as thanks. Nah doesn't sound realistic. They're governments. They'll never send thanks to anyone for money they suddenly can steal.

In addition to what can be funded now? Probably none at all. The size of the government as a share of national spending is not determined by specific sources of income. It is an ideological and pragmatic decision of the people (or by whoever else has political power)

So if the government had this source of income, it would not be able to levy all other taxes to the same extent it does now. It is unrealistic to assume that the share of government spending would be much greater if they had this particular source of income.

The immediate effect of 100% reserve is that commercial banks cease offering credit and instead start behaving like safe deposit boxes for people's money, offering negative interest. They effectively stop transforming savings in productive investments, saved money is simply extracted from circulation.

If it wants to prevent a major liquidity crunch, the central bank will flood the market with newly created money and keep the economy going. Just what we want, right ? But in doing so, it will effective take on the role of the commercial banks in deciding which areas of the economy are worthy of investment.

So instead of voting with your money and choosing a bank that is safe and makes prudent investments, everybody is forced to "save" at zero interest and empower the Central Bank (effectively, the state) to make investments on their behalf and decide the economic future. Worse still, any failure or bad investment is socialized through inflation and high interest to the whole of the population, since there is no longer any competition that prunes imprudent banks.

We are in fact moving away from market solutions and into a central planing utopia. Instead of punishing and bankrupting the speculators, we are putting them in charge.

Note the dropped 's' in Varoufakis's comment.

What you describe is the opposite of a fractional-reserve system. It is a full-reserve system.

Or forever if the loan defaults. What's wrong with the system where only central bank issues loans and only commercial banks can take them?

" limit financial speculation by requiring private banks to hold 100pc reserves against their deposits. "

Normally, banks aren't required to actually have the money they lend out, so when a loan is credited to your account that money is created (and when you repay the loan, the money is destroyed). In many countries banks are required to hold a certain amount reserve (I think it's about 1.5% in the USA - the UK doesn't have such a requirement), so this is simply requiring that the banks have 100%, which means banks can only lend money they actually have.

EDIT: Did you mean how does the whole money creation thing work at all? There's a very clear guide at:

http://www.bankofengland.co.uk/publications/Documents/quarte...

It's for the UK, but pretty much all modern countries work in a similar way.

Banks would essentially just facilitate transactions and act as conduits between borrowers and the central bank. I don't think it makes much sense for country like USA that places such a high importance on free markets and liberty.

The elimination of intentional duration mismatch and the introduction of fraudulent time-money claims by the financial sector is one of the most important moral and social issues we face.

They can borrow money from central bank if they think they can lend it for more. I don't think safety improves through that, because if retail borrowers don't pay up en masse we still have a lot of money in the economy that we don't know how to take back. ... maybe additional safety through one more layer of oversight ... if commercial banks give bad loans, central banks could prevent them from taking more loans

On the plus side less profit from taking the risk of overinflating money supply lands in commercial bank owners hands.

So, nothing spectacular except from the idea of putting this into a referendum instead of saying "No/Yes" without consulting the population. Switzerland is amazing.

Or, when living in a country with untrustworthy currency, you can just exchange your savings to USD (or CHF etc.) and have them equally protected.

Just print eg 3% more money each year. Give eg 30% of the new money to the state for its expenses, give the rest equally divided to all the population. End of story.

No need for IRS, no need for filling taxes, layers, tax accountants, tax checks. The amount would be insignificant (as a percent) for the rich, significant for the poor, thus helping them more. The only tax would be the specifc controlled inflation.

Looks to me as a very simple, nice system. ..Any thoughts anyone, why this would or wouldn't be a good idea, and / or how it could possibly be improved?

Of course, with stocks you have a much larger ability to measure your trust.