Full money initiative

Banks, Insurances & Third Pillar
1

The full money initiative is coming. what’s the mustachian thing to do? Vote yes or no?
I mean mustachian rarely leave money to banks.
My impression is that if banks cannot create money, they will be careful with how they invest the money. There will be less money around, so it’s going to be more expensive. Banks will be competing to attract more money, but they don’t want you to invest it (it wouldn’t be available to them) so the price occounts/etf accounts etc will increase. I’m thinking CT for instance will not be able to offer a free depot like now.

All in all, I think the impact for mustachian is not that great, but still will make chf even more expensive. So i think is better to vote no.
Opinions?

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2

I for one don’t really understand the mechanics of how it should work. Currently with the fractional reserve system, the bank creates digital money and it increases the balance sheet on assets and liabilities side. If this was not allowed, then where would loans come from?

If it would come from the central bank, then it would just increase the balance sheet of the central bank. So what has changed? Just the central bank has the control if they give money to this bank or not.

The whole whole concept of money creation is unclear to me and I find it funny that regular voters should decide in a referendum on a thing they have probably no idea about. But it’s nevertheless an interesting topic to discuss.

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3

The main point i heard is that it would somehow turn it into “real” money because the central bank does it and would be somehow protected in case the bank dies. Not that this is not already mostly protected (at least up to 100k).

So if this would actually work it would only really help people who keep >100k cash at a single bank and I have no idea how common that is.

4

I would not be too optimistic about this protection. If there is a big crash in the financial sector, the money in the emergency fund could not be enough to cover everybody’s 100k.

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5

As far as I understand, nothing will change much. Instead of banks creating credit from thin air (thanks to central bank protection), they will have to ask the central bank to create the credit from thin air first. It will just get rid of the delegation process.

I think it’s move in wrong direction - the proper thing to do is to abolish central banks and let the market create money and credit institutions. Instead they will just increase the political control over the money/credit creation process.

PS. Here’s good comment on the initiative, but I don’t agree with it:

PPS. Good article on The Economist (that I agree with):

PPPS. Another interesting interview:
https://www.cobdencentre.org/2016/02/interview-with-dr-emma-dawnay-on-the-swiss-referendum-on-monetary-reform/

PPPPS. And here’s a comment (literally article’s comment) of one my favourite economists George Selgin:

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6

i also dont understand that case. however when i read on the yes and no campaigns, the yes’s arguments appeared a bit shady to me, and the no’s arguments made more sense rationally.

i believe this is a far too fundamental manipulation of the current system, hardly anyone understands what they are voting on. like the unternehmensteuer III vote.

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7

What you write makes a lot of sense to me. It’s a move that shifts control from private to public sector, with hope, that public sector will be somehow more competent. But how do you imagine abolishing central banks? If there is really nobody controlling money supply and everyone can print what they want, then how should this work? Don’t get me wrong, it’s an interesting idea. I have a feeling that central banks are often responsible, if not for the crashes, then for their size. They control the inflaton and levy an invisible tax on money. And they are so powerful and useful to governments, I cannot believe abolishing central banks is remotely posible. I read somewhere that there are only 3 countries in the world without central banks: Iran, North Korea, and some other. So, yeah…

8

For most of the history there were no central banks - including the period of the fastest growth, that is XIX-centry. So in essence it is possible (here’s a book on that). Plus, currently you have also altcoins, which are privately-produced monies.

In practice however, as you said, it’s not possible, because central banks maintain inflation that lowers the value of paybacks of debtors (and lowers the cost of export) and the biggest debtors are obviously governments (and their government friends are exporters). So yeah, it’s not possible in practice, unless we would first pay off the government debt, stop subsidising exporters and forced politicians to keep balanced budgets (and thus radically limit the government spending). We would need lots of political will in society to force politicians to such changes and I doubt it’s possible - people generally prefer to get “free” stuff from govenrment financed by inflation (i.e. redistributed from folks who save money).

9

I would explain it a bit differently. In a progressive tax system, the majority of the people are net beneficiaries of the tax system (they get back more than they pay). The ultra rich find ways to avoid taxes, so the ones getting screwed are the upper-class workers (in Switzerland I would classify them as people with income between 120k and 300k).

So given the two options: raise taxes or cut spendings, it’s obvious what is the preferred option in a democratic system…

10

I’m not sure if it’s the case. In most countries, if you sum up personal income tax (and add the impact of corporate income tax and cost of regulation on wages), add “insurance” taxes, add VAT and excise taxes, add inflation - I think you’d get 80% of the income taken by the government one way or another. I think that this system gets majority leiitgmization because most people believe that they are net beneficiaries, because they don’t see the effects of government redistribution on their income. Or in best case, they’re are nominal net beneficiaries, but not in real terms.

Certainly, the upper-class workers and small entrepreneurs are screwed the most.

11

I’m not sure if it’s that brutal, but in some countries, for some people maybe that’s true.

But on the other hand you have all the things that are sponsored by the country: pension, roads, hospitals, police, firefighters, etc. It’s hard to put value on these things, but no doubt they have value.

So I guess what I imagine as an example, a person earns 50’000, 20’000 is taken by the goverment in the form of all these taxes that you mentioned. 30’000 is what this person (eventually) gets back. So this particular person would be a net beneficiary of the system. These are completely hypothetical numbers.

Aggregated on a country level, all the tax income could be, let’s say 300 billion, 250 billion would go redistributed for pensions, benefits, military, healthcare etc, and 50 billion would be admin cost: salaries of politicians, public workers, rent for all the public buildings, IT systems, etc. Again, arbitrary numbers. You could argue that this admin cost is also a form of redistribution.

In the end, the public sector reminds me of a leech attached to the economy, providing negligible added value. But it is redistributing money, and this money does not get lost, it ends up in some pocket. So in the end if you sum up the net gains and losses of each person due to government, both sides should be equal. And my argument is just that ironically there is a majority of people who have (small) net gains, and a few people that have high net losses.

12

Back to the original topic: would the proposed full money initiative not get rid of the bank run threat at least? If all deposits would be directly covered by the central bank, then I assume you would need to pay the commercial bank for keeping your money there, but at least you could always withdraw it/transfer it out, and so could all the other people, without panic at the ATMs, as it often happens. Or am I missing something?

13

thank you all for the nice discussion. I don’t agree that this kind of initiative should not be voted by normal people.
First usually only a small subset of responsible citizen goes to vote. Seeing the topic of this two object I expect like 35%-40% participation.
Additionally I’m not sure our politician are better suited to understand certain technical things.
Third this is more of an ideological position, is just that the consequence are difficult to foresee. But if you vote for ideological reason you don’t really care of the consequence, you just want something done your way.

I wonder if this initiative woul move the risk from banks to SNB. If the bank act as intermediary and the debt position is generated in the central bank, then what happens if there is bankruptcy? Is the bank in any way affected? Or only the SNB?

14

my first question is: how is the loan even issued? you want a mortgage loan, you come to the bank and then what? if they give you any money, then when does it come from?

I studied economics and we never went this deep into the banking system. And making the decision based on your intuition is just plain stupid. What if the people vote in favor, because they don’t like banks and then it destroys the banking sector in Switzerland? I think, even if this goes through, they will do everything not to make it happen.

15

There is a very good french youtuber explaining the economy: Heu?reka. It can help a bit to comprehend the initiative.

How is the loan even issued? => The bank could either lend you their money, or use the money lent by someone else or ask the BNS to lend money.

The exact details of the implementation being undefined, it can of course be completely stripped from its purpose by the ones doing the implementation. But being in a more or less direct democratic country, the voting on pre-packaged deal is our main way to show where we, the population, want to go.

16

Then explain this to me:

  1. You have 1m CHF
  2. You decide to create a bank and bring this 1m as capital
  3. You give me this 1m as loan
  4. I buy a house from Grog for 1m
  5. Grog deposits this 1m at your bank
  6. Are you allowed to give out another loan? Why/why not?
17

To take your example, if I am a bank and I have 1 MCHF I can lend you 1 MCHF but I take only 100’000 from my reserve and I increase my balance sheet by 900’000 CHF for the rest. Even if Grog does not come in my bank with his 1 MCHF I am still in a position to lend 9 MCHF based on the 900’000 reserve I have in the Bank, (example in which the reserve of the bank is 10% of the balance sheet)
This mechanism is explained in a publication of the Bank of England : Money creation in the modern economy.
You can even enjoy an interview of the authors of this publication explaining the money creation process and why this process is useful for the economy.
If you do not understand the interview you can still enjoy the background. :star_struck:

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18

Thanks for your effort, but this topic is about “vollgeld initiative” and this is what I’m asking about.

19

I personally will vote “no” because I don’t believe the whole credit system can be handled efficiently and competitively from one “service provider” - the central bank. If I need a mortgage, a loan or any other form of credit, I prefer to “shop around”, compare the best offer, negotiate and hope to get better terms as from a one serve-it-all central entity that might even start to have “waiting lists” for mortgages or create artificial shortages - I believe we outlived communism. So, I’m pro-market, pro-flexibility and pro-independent central bank - our central bank would no longer be independent if they would have to decide every credit application (and imagine all the people they’d have to hire). Regular banks are here because they can make a business out of deposits and credits - that’s the function of the banks. If the banks don’t manage well, they will not survive. Just my two cents.

20

I don’t think this initiative would prevent the “shopping around”. Your interfaces to money will still be the bank, not the BNS. Sure they will be less flexible, but not to the point where they would need to ask the BNS for every loan.
I guess the banks would need to encourage lending them money which they could do with increased interest.

Your quote “the banks don’t manage well, they will not survive” is actually the main point of the initiative. Currently most banks are too big to fail, which encourage them to take enormous risks for huge returns when everything goes well. And get tax money from government to bail them out when they do fail.

@ Bojack: Of course they would be allowed to give another loan. They have this money in the bank. But they would have to insure that they have enough reserve if a few loans go bankrupt.

It’s actually the same thing with GDP. Let’s say “A” produce bread and “B” produces wheat. If everyday A pays B one dollar in exchange of wheat and B pays A one dollar in exchange for bread the whole GDP for the year would be the addition of all the services, meaning 365 x 2 dollars. If you just accelerate the cycle by consuming twice a day, the GDP double even though the amount of money in circulation is the same.
Currently the role of the BNS is to try to regulate the amount of money in circulation by printing and defining interest rate, with the initiative it would be more direct.