As a board member of the organisation bringing the "Vollgeld" Initiative in Switzerland, I am very happy to see "Vollgeld" being discussed, especially in blogs such as this one. I hope it will be appreciated if I make some corrections and clarifications to the above text regarding facts about the initiative. I'll use the standard English translation of "Vollgeld" which is "Sovereign Money".
Whilst a sovereign money reform has many similarities to the Chicago Plan or 100% reserve banking (and many of the same advantages), the mechanics of how the accounting is done is completely different. The article above may correctly describe accounting under the Chicago Plan, but it does not describe accounting under a sovereign money system. Under the Sovereign Money system as proposed in Switzerland, electronic money will be brought into circulation by the Swiss National Bank in the same way as is currently the case for coins or bank notes. A customer "current account" at a bank will actually become more like an electronic wallet holding "sovereign money" (in electronic form), which is managed by the bank on behalf of the customer. Money in such accounts or electronic wallets will not appear on the banks' balance sheets, and will not disappear should a bank go bankrupt. Customers can choose to put their money into a savings account to earn interest - then the bank can lend out this money to customers requiring loans. This will be accounted for in the usual way, on the balance sheet. Banks will act as intermediaries between savers and borrowers in the way most people (falsely) believe banking works today. It is unlikely that customers (in Switzerland or internationally) will notice any change after the introduction of this Sovereign Money reform, except perhaps, that they will no longer receive any interest from current accounts.
Some other misconceptions in the article above:
- Banks will be entirely free to set interest rates and add risk premiums as they see fit. If there is a shortage of credit, the Swiss National Bank can lend banks sovereign money at an interest rate they see fit.
- There is no forced buy-back of government bonds. At times when the Swiss National Bank calculates that more money is needed in the economy, it will create sovereign money and give it to the government so the elected politicians can decide what to do with these funds (e.g. reduce taxes, pay for public works or reduce the national debt). Politicians will not be allowed to influence the Swiss National Bank as to how much money is created - the Swiss National Bank must (by constitution) do this independently in the interest of Switzerland as a whole.
- Regarding the question whether Switzerland can "go it alone": the Swiss National Bank will have all the tools currently available to it with the extra (very powerful) tool that it will be able to directly control the amount of money circulating in the Swiss economy - which should make it easier for the Swiss National Bank to carry out it's mandate than it is now.
For more information see www.vollgeld-initiative.ch/english.
If anyone plans to write another blog about "Vollgeld", I would be more than happy to answer any questions.
Dr Emma Dawnay