The Vollgeld Initiative: A Primer
Over 100,000 Swiss citizens signed a petition to hold a constitutional referendum to end fractional reserve banking. Yes, really! That petition was certified on 24 December 2015 and a vote will be held sometime in 2018.
Switzerland, that scion of banking, may vote to end the bedrock philosophy underlying modern finance. The date of the referendum is not official as of this writing, but ballots will be cast on either 4 March, 10 June, 23 September, or 25 November.
The movement is known as Vollgeld and is inspired by the torch-lighting work of Nobel Prize-winning economist Irving Fisher in the 1930s and the torch-bearing work of the International Monetary Fund (IMF). Though it draws on these antecedents, the Vollgeld Initiative features its own distinct provisions.
In short, Vollgeld backers believe that a full money reserve system will lead to:
- Greater control of business cycle fluctuations.
- The complete elimination of bank runs.
- A significant reduction in net government debt.
- A dramatic reduction in private debt.
Opponents counter that an end to fractional reserve banking will crush the financial industry and its ability to facilitate economic growth. They contend that concentrating credit creation authority in the hands of bureaucrats — as Vollgeld does — is a mistake. Moreover, they believe that depositors under Vollgeld will likely earn negative returns on their deposits. Thus the initiative will discourage deposits altogether.
Because this story features many moving parts and opinions, I have curated a reading list to help you keep track of this potentially earth-shaking movement.
- “Is This the End of Fractional Reserve Banking?” — From early 2016, my original piece on the Vollgeld movement provides links to important documents that frame the referendum.
- “Vollgeld Initiative” — I recommend opening the official homepage of the referendum movement in Chrome or a similar web browser that automatically translates sites into your preferred language.
- “The Sovereign Money Initiative in Switzerland: An Economic Assessment” — A Swiss economist concludes that the Vollgeld Initiative should be voted down.
- “Vollgeld: What It Means for Fractional Reserve Banking in Switzerland” and “The Vollgeld Initiative and the Future of Fractional Reserve Banking” — Authored by my colleague, Ron Rimkus, CFA, these pieces examine the specifics of the Vollgeld Initiative.
- “A Simple Analysis of the Vollgeld Initiative” — Two banking professors analyze Vollgeld-related issues from various vantage points in a generally evenhanded manner.
- “Our Money, Our Banks, Our Country” — This conference, co-sponsored by CFA Society Switzerland, will examine the Vollgeld Initiative from multiple perspectives on 5 February 2018.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.
Image credit: ©Getty Images/Danita Delimont