100% Reserve Banking

Switzerland will hold a referendum to decide whether to ban commercial banks from creating money.

The campaign – led by the Swiss Sovereign Money movement and known as the Vollgeld initiative – is designed to limit financial speculation by requiring private banks to hold 100pc reserves against their deposits.

Not a gold standard:

The Swiss federal government confirmed on Thursday that it would hold the plebiscite, after more than 110,000 people signed a petition calling for the central bank to be given sole power to create money in the financial system.

If successful, the sovereign money bill would give the Swiss National Bank a monopoly on physical and electronic money creation, “while the decision concerning how new money is introduced into the economy would reside with the government,” says Vollgeld.

A central bank / Irving Fischer standard.

From the Vollgeld initiative site, a Q&A:

Q: How can the Swiss National Bank know how much money is needed?

They can’t know.

A: The Swiss National Bank needs the sovereign money reform to be able to fully control the amount of money in circulation.  The Swiss National Bank collects the best statistics on the economy, and therefore has the best overview as to how much money is needed.

They can centrally plan.

Nothing market oriented about this initiative; nothing to cheer from a free market perspective.  The initiative concentrates even more power in the central bank – instead of decentralized decisions about digit creation, only the monopoly central bank will be allowed this task.

The initiative demonstrates (I won’t say proves, although I am certain this is anyway the case) that it will require force to ensure 100% reserve (against gold, any commodity, electronic digits or whatever) banking.  It cannot happen absent the initiation of force by non-market actors.  To put this in place will require voters tasking the government to stand between willing economic actors and hinder a transaction.

Therefore 100% reserve banking – even against gold – cannot provide the most relatively stable money and credit system.  Inherently a free market – driven by prices and profit and loss (with all its consequences) – is the best means by which to provide money and credit in a manner and type desired by the market, and do so in the most stable manner.

End central banking; end the government’s backing of banks; end deposit insurance; allow banks to fail.

The solution lies here – not in any preconceived notion of proper banking.

End the Fed (and the SNB, and all the rest).

Reprinted with permission from Bionic Mosquito.