Vote to End Fractional Reserve Banking in Switzerland
June 10th, 2018Via: Reuters:
A radical plan to transform Switzerland’s financial landscape by barring commercial banks from creating money when they lend looked set to fail, according to initial projections on Sunday.
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The vote, called under Switzerland’s system of direct democracy after gathering more than 100,000 signatures, wanted to make the Swiss National Bank (SNB) the only body authorized to create money in the country.
Contrary to common belief, most money in the world is not produced by central banks but is instead created by commercial lenders when they lend beyond the deposits they hold for savers.
This arrangement, underpinned by the belief that most debts will be repaid, has been a cornerstone of the global capitalist system but opponents say it is unstable because the new money created exceeds economic growth.
When a bank lends money, it HAS to create it since the borrower is in fact a depositor the very minute before he or she withdraws or tranfers the money for the stated purpose of the credit. There’s a new asset for the bank, but a new liability as well, and both will remain until bank clearing. So banks have an incentive to keep a somewhat balanced sheet in order to avoid cash shortages and subsequent refinancing difficulties. Less so if they’re deemed too big to fail.