Federal Council adopts dispatch on Vollgeld initiative

Bern, 09.11.2016 - During its meeting on 9 November 2016, the Federal Council adopted the dispatch on the popular initiative "For crisis-resistant money: end fractional-reserve banking (Vollgeld initiative)". It recommends rejecting the initiative without a counterproposal. The initiative is calling for a complete transformation of the current monetary system. If the initiative were to be accepted, Switzerland would become a guinea pig for untested reforms. Acceptance would complicate the Swiss National Bank's monetary policy and lead to considerable risks for the Swiss economy.

The popular initiative is proposing a new framework for Switzerland's monetary system. A new Article 99 in the Federal Constitution should give the Swiss National Bank (SNB) a monopoly for issuing book money. Commercial banks would no longer be able to grant loans financed by sight deposits (current accounts) like at present. The initiative also provides for the SNB putting money into circulation debt-free by distributing it directly to government units and the people. The initiators believe this reform would result in a more stable banking and financial system.

The Federal Council acknowledges the importance of a secure financial sector. However, the reform is unlikely to have a stabilising effect. It would cause Switzerland to go it alone and would result in an extensive and untried transformation of its monetary system and financial sector. Such a profound transformation of the monetary system would carry substantial risks. Moreover, economic upheaval would have to be expected, especially in the financial sector, during the changeover process in particular.

The debt-free money creation called for by the initiative could jeopardise the SNB's credibility. The money put into circulation by the SNB currently stands against assets in its statement of financial position, primarily currency reserves and gold at present. Acceptance of the initiative would mean that the SNB would no longer be in a position in the long term to reduce the money supply created by selling assets. Aside from the fact that it would be more difficult to implement monetary policy and ensure price stability, the SNB would also be more exposed to political covetousness.

The fractional-reserve banking reform would significantly restrict banks' business scope in places, as it would no longer be permitted to grant loans financed by sight deposits. Banks would have to resort to other, generally more expensive sources of financing for this. Payment transaction costs for bank clients would probably rise. Particularly smaller banks, which generate a large proportion of their revenue in the interest margin business, would be affected by the cost increase. If it were impossible to cover the demand for credit with other sources of financing, the SNB would have to grant banks the corresponding loans. Some of the credit volume would thus be managed centrally by the SNB.

The Federal Council wishes to adhere to its existing strategy for a stable financial centre. Considerable progress has been made in recent years with the adjustments to the Basel III standards and the requirements for systemically important financial institutions (too big to fail). The depositor protector regulations currently protect client assets in bank accounts up to a sum of CHF 100,000. Moreover, FINMA supervises banks for excessive risks.

With its dispatch, the Federal Council is thus requesting that Parliament recommend to the people and the cantons rejection of the popular initiative "For crisis-resistant money: end fractional-reserve banking (Vollgeld initiative)", without a counterproposal.

Address for enquiries

Philipp Rohr, Communications Officer,
Federal Finance Administration FFA
Tel. +41 58 465 16 06, philipp.rohr@efv.admin.ch