The rise of cryptocurrencies and e-currencies has been a major theme in markets over the last year and as the popularity (and price) of many major digital currencies has soared, they have been pushed further and further into mainstream focus. This focus has now grown to the extent that many central banks and governments have been debating whether to introduce their own versions of these online currencies, with the Riksbank reportedly on the verge of launching its own E-Krona. Indeed, the role of central banks in the money supply has been hotly debated.
Swiss Vollgeld Referendum Coming
While the market waits for such a move, attention now shifts to the upcoming June 10th, Swiss Vollgeld Referendum, in which citizens will be asked to vote on the “vollgeld” initiative which aims to reform the monetary system in the country. Essentially, those behind the initiative want to remove Swiss bank’s ability to create physical and electronic money, instead handing the sole rights for currency creation to the SNB.
SNB Against The Move
However, while this might seem like a positive step, the SNB is strongly against the move. In a speech made last week, SNB chief Jordan said that “the initiate raises unrealistic expectations”, adding that adopting the system “would have serious consequences for Switzerland”. Jordan’s point is that a sovereign monetary system would create a more complicated environment for lending as some bank’s would no longer be able to rely on customer’s sight deposits to fund loans, they would need to rely on investors, making borrowing more expensive which Jordan says would have a negative impact on investment, consumption and overall economic output.
Adding further detail, Jordan said that the negative impact on the economy would have similar negative effects on the effectiveness of SNB monetary policy. He highlighted that; interest rate targeting is a far more effective strategy than monetary targeting and ensures a steady supply of flexible liquidity to the economy, especially during any crises.
Those in favour of the move however, claim that the country will benefit from having a sole currency creator and note that the additional resources made available could be used to lower the burden on Swiss citizens. This would happen through “debt free” payments by the SNB, made to the Cantons, the confederation or the citizens themselves.
However, Jordan says that these resources would only be able to replace the SNB’s revenues gained through yield profit on foreign currency deals, investments or on bank loans. Commenting on the issue, Jordan said “Under the established practice today, the SNB distributes interest on its capital, while under a sovereign money system it would be selling off the capital” adding that “debt-free payments would not make the country any richer”.
Public Divided Over “Vollgeld”
Clearly, the two sides fighting this Vollgeld referendum are fiercely opposed and the decision for citizens will not be an easy one. It is difficult to know where the vote is likely to fall though looking to initial survey data it seems that for now, the system would be kept the same. A survey conducted by the Research Institute gfs.bern for broadcaster SSR showed that only 35% of those polled intended to vote in favour of reform while 49% say they would vote in favour of reform.
However, as we have seen with polling results over the last two years, they cannot necessarily be taken for granted and there is very much a hot context here between those in favour of reform and those against it. Indeed, another poll published earlier this week shows a much closer contest with 45% intending to vote in favour of keeping the system as it is and 43% intending to vote in favour of reform.