Sunday, June 3, 2018

UPCOMING: Swiss Referendum Vote On Eliminating the Country's Fractional Reserve Banking System


Switzerland will hold a referendum on June 10 to essentially eliminate the fractional reserve banking system of the country.

The referendum calls for the introduction of what is identified by supporters of the referendum  as a
"sovereign money system." The measure, if passed, would bar commercial banks from creating money every time they make a loan, which is the fractional reserve structure by which money is currently created in most countries around the world albeit under the control of central banks.

Supporters want the Swiss National Bank to be the only authority producing new money in the country.

There are certainly plenty of problems with fractional reserve banking. The Austrian school economist Murray Rothbard wrote in his book, The Mystery of Banking:
fractional reserve banks … create money out of thin air. Essentially they do it in the same way as counterfeiters. Counterfeiters, too, create money out of thin air by printing something masquerading as money or as a warehouse receipt for money. In this way, they fraudulently extract resources from the public, from the people who have genuinely earned their money. In the same way, fractional reserve banks counterfeit warehouse receipts for money, which then circulate as equivalent to money among the public. There is one exception to the equivalence: The law fails to treat the receipts as counterfeit
In other words, it does make sense to banish the fractional reserve system. However, the alternative should not be to put at the steps of a country's central bank the ability to create money, that is, to be the counterfeiter.

Ideally, in a private property society, banking and money would be left for development in the free market and it would not be difficult to see how gold and silver would likely emerge as the money in such a free society. However, we are far from a PPS. In the current world, from a realeconomik perspective, one must view the Swiss referendum as confused. The call should not be for a change in the counterfeiter but in the elimination of the counterfeiter.

Elimination of the fractional reserve banking system and putting money printing control directly in the hands of the Schweizerische Nationalbank will certainly redirect how money printing will occur but it does not kill the evil money printing beast. The advantage will go to those who first receive newly printed Schweizerische Nationalbankmoney as opposed to those who are first in line at commercial Swiss banks under the current fractional reserve system. The advantage will go to those who first receive newly printed Schweizerische Nationalbankmoney as opposed to those who are first in line at commercial Swiss banks under the current fractional reserve system.

The problem remains that under either of these systems there is a crony advantage to be had for individuals and groups to be first in line to get ahead of the money printing distortions caused by the monetary inflation.  Indeed, under both structures, an out of control monetary inflation could very easily lead to rapid price inflation.

The realeconomik answer is to demand a return to a system whereby no money is issued by a central bank that is not backed up by gold. In other words, a return to a gold standard whereby paper money and its electronic substitutes return to their role as simply warehouse receipts for gold.

Unless polls à la Brexit and Trump are off, the referendum will be defeated. Polls show just 35 percent support the change.

Sadly, there is no present Swiss referendum calling for a gold standard.

-RW  






2 comments:

  1. I'm sure if the Swiss ever voted for a gold standard they would find themselves on the receiving end of the US war machine.

    ReplyDelete
  2. Referendum soundly defeated by 76% of the voters.

    ReplyDelete