Interview with Dr Emma Dawnay on the Swiss referendum on monetary reform

The following questions have been answered by Dr Emma Dawnay, on behalf of Monetäre Modernisierung, the organisation bringing the Swiss Sovereign Money Initiative (or Vollgeld-Initiative in German). The interviewer is The Cobden Centre Editor, Max Rangeley.


How does the current monetary system affect the economy?

In several ways. The most drastic way is that the current system is inherently unstable – giving rise to gradual unsustainable build ups of debt which can turn into financial crises, as we have seen in 2007/2008. This happens because money comes into circulation almost entirely by banks making loans. In Switzerland 90% of the money supply M1 has been lent into existence by banks, and only 10% comes from the Swiss National Bank. Banks base their decision on whether to give a loan on one criterion only: do they expect it to make a profit for them? They do not have to check they have sufficient reserves, nor do they take the health of the economy in general into account. The result is that they tend to make too many loans in the economic good times, and they tend to stop lending in the bad times when boom turns to bust, which means either too many or too few projects get funded. The trouble with a financial crash is that it doesn’t just affect financial industries, but the whole economy and society.

Another way the current monetary system affects the economy comes from the fact that it is much easier for a bank to lend money into existence against collateral – either financial or real estate assets – than to lend against a business plan. This means that the way money enters the economy is more likely to inflate asset prices than to generate jobs, goods and services.

There are also other, more hidden, ways that the current monetary system affects the economy. One of these is that, as the banks can create money, their costs for financing internal projects are much less than for other firms.  A normal (non-bank) firm must raise money to fund a new project. To do this, they can issue shares, or borrow funds (for which they must pay interest). They cannot simply “print money” by issuing a loan to themselves to fund their project.  For banks it is different. They may issue themselves a loan (on their own terms) for their own use whatever the purpose – be it investing on their own account or buying buildings. The result is the cost of raising funds for a bank is very small, whereas firms have to invest time and effort into persuading others to lend to them (or buy their shares). These lower financing costs for banks compared to other firms result in a misallocation of capital and is sub-optimal for the economy.

Another way the current system affects the economy is by a hidden implicit subsidy that the big banks have, as they are “too big to fail”. We allow normal firms that don’t perform well to go bankrupt. This may be painful in the short term, but in the long run it allows new good firms to grow, and it benefits the economy. If a single small bank doesn’t perform, it can be allowed to go bankrupt; however, the knock-on effects if any of the big banks were to go out of business would be just too severe for society, which means that the government must bail them out. (This actually happened in Switzerland which bailed out UBS after the financial crisis). The knowledge that they will be bailed out – come what may – means that the big banks can take much bigger risks than they otherwise would: they get the upside if the risk pays off, and there’s very little downside as in the worst case they’ll be bailed out. This acts as a huge inherent subsidy which gives big banks an unfair competitive advantage compared to small ones, and leaves the state (and ultimately the taxpayers) carrying the risks made by the big banks.

Lastly, there is a profit to be made by creating the money supply known as seigniorage. In the current system money is created when banks lend it into existence and it is destroyed when the loan is repaid, but the bank gets to keep all the interest that the loan has incurred. This interest, less any “risk-premium”, is the seigniorage-related profit the bank makes from creating the money. (I’m over simplifying a bit here – it’s actually a little more complicated as this). As 90% of the M1 money supply is effectively on loan from the banks in Switzerland, this profit is not small and acts like another subsidy for the banks.


What exactly is the Swiss Sovereign Money Initiative, and how do you see it solving the problems in our current monetary system?

The Swiss Sovereign Money Initiative (or “Vollgeld-Initiative” in German) is a proposed change to the constitution which will go to referendum. If adopted the Swiss National Bank (SNB) would be exclusively responsible for bringing not only coins and bank-notes into circulation, but also book-money (or “current account” money), which means the entire M1 measure of the money supply in Switzerland. When more book-money is deemed necessary, the SNB would create this and it would be spent into existence by the national government or the cantons, or given directly to the people as a citizens’ dividend. The SNB would also be allowed to lend money into existence by lending money directly to the banks. As the SNB would be the only organisation able to bring new money into circulation, it would be able to directly control the amount of money in circulation.  The SNB would also be given the task of assessing how much money is necessary, completely independently from interference from politicians (or anyone else): it must act in the best interest of Switzerland as a whole.

Banks would no longer be able to lend money into existence, as they do now. Only the SNB will be able to create money. Banks would account for book-money off their balance sheets – money in people’s current accounts would no longer be liabilities of the bank. This book-money would be legal tender which would legally belong to the “bank account” holder, not (as it does now) to the bank. The term “bank account” isn’t really appropriate anymore; a better description would be an “electronic purse”, as the banks would look after this money in effect like they look after treasures in a safe. They cannot use it, but they can administer transactions on request of the owner. If they go bust, like coins and bank-notes, this money won’t disappear.

If people want to put their money into a savings or investment account, they can do so. These accounts would have a minimum term – set by the SNB – which would differentiate them from current accounts (or electronic purse accounts). If a customer chooses to put money into an investment account to receive interest, the bank would lend this money to borrowers: the bank would thereby be acting as an intermediary between “savers” and “borrowers”. This money would be “at risk”, and would disappear should the bank go bankrupt. Note that the total money supply (M1) is not affected if a bank goes bankrupt – after the sovereign money reform money can only be created or destroyed by the SNB.

This sovereign money system solves all the problems mentioned above.

The SNB would be responsible for the amount of book-money in circulation, not the banks. This would reduce the instabilities in the current financial system, where banks tend to lend too much in the good times and too little in the bad times causing great swings in the economy. Further, I’d expect banks to be more wary of lending unwisely as they’d know they could go bust, and I’d expect savers to be more careful about lending, knowing they could lose their savings. This would also help to stabilise the economy.

New money would mostly be spent into the real economy creating jobs, goods and services. This happens as it will be spent into existence by the national government or the cantons on projects in the real economy, or it could be used to reduce citizens’ taxes, thereby giving people more disposable income which is likely to spend in the real economy.

Banks can borrow money for their own projects, just like all other firms. But they cannot create it themselves. Therefore they are subject to the same constraints as all other firms in the economy.

Big banks (as well as small ones) can be allowed to go bankrupt like any normal private firm. If this happened, administrators would have to step in organise access to people’s “current accounts” or electronic purses, as these funds actually belong to the account holders. Money in such accounts would never be “at risk” (thereby completely avoiding the problems of bank runs). This means there’ll be fair competition between banks of all sizes as big banks won’t have an inherent too-big-to-fail subsidy. It also means that taxpayers won’t be responsible for carrying the risks made by the big banks, as they are now.

The full seigniorage profit will fall to the state, and the banks would lose their seigniorage-related profits. We estimate the annual seigniorage profit to be about 5 to 10 billion Swiss Francs over the few years following a sovereign money reform. This comes from expanding the money supply (M1) in accordance with economic growth and from the one-time changeover to sovereign money.

Finally the sovereign money system breaks the illogical link that the money a society needs equates to the amount of debt in society. Currently, if all private and public debts were repaid, 90% of the money in circulation would cease to exist!


Won’t that be giving the Swiss National Bank an awful lot of power? Some economists think that the central banks do more harm than good!

As long as there is one dominant currency that is used by most people for most transactions, the state has a duty ensure that there is no catastrophic collapse in this currency which would prevent everyday transactions, as this would cause terrible hardship. In general, this job has been given to a nation’s central bank.

At the moment the banks create the money supply with absolutely no duty to oversee that this is done in the best interests of the nation. Central banks are reacting to a financial crisis caused by banks creating too much debt, and they are fighting to keep the current system alive in difficult circumstances as they don’t control the amount of money banks lend into existence. The Swiss Sovereign Money Initiative would give the Swiss National Bank a new effective tool with which to fulfil its mandate of enacting a monetary policy in the best interests of Switzerland as a whole: it would be the sole organisation allowed to create money and therefore it would have full control over the money supply.

An important point to note is that the Swiss National Bank alone must independently decide how much money is needed, but it is allowed absolutely no say in how the money will be used. Politicians can decide how the money is used, but they will have absolutely no say in how much money is either spent or lent into the economy. In the same way that the judiciary is not answerable to politicians, the Swiss National Bank would not be answerable to politicians. However, it will be (and is) bound by the constitution and the laws resulting from the constitution, and may be legally challenged if it appears not to be abiding by these laws.


Is the idea behind the Swiss Sovereign Money Initiative the same as the idea of 100% reserve banking?

There are close similarities with “100% reserve banking” also known as “the Chicago Plan” as proposed by Irving Fisher and others in 1933. However, there are also some significant differences.  In the 100% reserve banking system, the system works similarly to how it does today: there are two types of money – central bank money (that normal people never have) and bank money. Today, banks must hold a small “reserve” of central bank money – only a few percent of the amount of bank money in circulation. It turns out that having to have this reserve doesn’t constrain the amount of money banks can make – instead, banks make loans and then borrow central bank money as they need on demand from the central bank (the central bank being able to set the interest rate on this loan). Under the 100% reserve banking system, banks must hold 100% in central bank reserves, but, similarly to the current system, it won’t actually stop the banks from creating money.

With the sovereign money system there is only one sort of money which is available to everyone. The distinction between central bank money and normal money disappears. Only the central bank will be able to create this money – in our case for the benefit of Switzerland as a whole. The banks will only be able to act as an intermediary between savers and borrowers, lending out this money on behalf of savers (who own the money), to bring them interest. In this way no extra money is created, so the central bank will be able to fully control the amount of money in circulation.


How did the initiative in Switzerland start?

Hansruedi Weber, a retired primary school teacher with a longstanding interest in philosophy and economics, read the book “Creating New Money” by Joseph Huber and James Robertson in 2008 when it had just been translated into German. It convinced him that the current monetary system is untenable. He realised that Switzerland’s unique system of direct democracy meant that Switzerland is perhaps the only country in the world which might be able to bring about a sovereign money reform – so he decided to do something about it.  He set up the organisation Monetäre Modernisierung (or MoMo for short) with the aim of bringing about a sovereign money reform by starting a Swiss People’s Initiative.


I’ve heard that you’ve collected 100,000 signatures. What does this mean?

Switzerland has a direct democracy. This means that there will be a national referendum held on a proposed change to the constitution if over 100,000 signatures supporting this can be collected within an 18 month period. This is known as a Swiss People’s Initiative. The initial work of our organisation, MoMo, was to put together a proposal for the new wording to the constitution. Once this was finalised (and approved by the authorities) we officially started collecting signatures supporting a referendum on this proposed change. On 1st December 2015 we handed in over 111,000 signatures to the authorities. On 24th December 2015, they confirmed that this initiative has fulfilled the required criteria and that there will be a referendum. The initiative will now be discussed in the Federal Council, then in both houses of parliament (any of whom can propose another alternative change to the constitutional text), after which the referendum will be held. This will most likely be within 3 years, but it can take longer.


Why does conventional economics pay such little attention to the monetary aspects of how a modern economy works?

I personally think that the problem was it became fashionable in economics to make economic models more and more mathematical at the expense of making them realistic. Making strict assumptions, for example, that money is neutral (along with people being fully rational etc.) lead to some interesting and complicated maths.  Established economics journals published papers on this and university courses taught it, and it became less easy to enter the profession without specialising in this much sanitised mathematical version of economics. Unfortunately, this branch of economics did not help to foresee the financial crisis in 2008. Since the financial crisis things been changing, albeit slowly, and more economists are modelling the effect of financial institutions on the economy, and “heterodox” approaches to economics are not shunned as much as they used to be.


What is the current level of support for monetary reform in Switzerland?

Mixed. So far no political parties or other organisations have endorsed the Swiss Sovereign Money Initiative, but we have supporters across the political spectrum. In business and academic circles outside of banking we are finding ever-growing support, although we are starting from a low level.

A survey carried out as part of an MSc project (properly randomised with over 1000 participants) found that 57% of the people asked would vote for the Swiss Sovereign Money Initiative.


Are politicians in Switzerland in general aware of the issues surrounding the monetary system?

Now that there will be a referendum, most politicians have probably heard of the “Vollgeld-Initiative” (Sovereign Money Initiative) as it has been widely reported on TV, radio and in the newspapers. However, most politicians, like most people, only have a hazy understanding of the current monetary system, often believing that banks act as intermediaries between savers and borrowers. In the survey that I’ve already mentioned, only 13% of people asked knew that the private banks (like UBS and Credit Suisse) create the vast majority of the money supply in Switzerland. Amazingly, many bankers and some economists also believe banks act as intermediaries – for which I blame numerous introductory economics textbooks.


Do you foresee the currently dispersed desire for monetary reform becoming a global phenomenon?

Yes. More and more people are becoming aware of the flaws in the current system, and the advantages of a sovereign money system. The International Movement for Monetary Reform, an umbrella organisation for groups promoting a sovereign money reform, is growing all the time. News about the referendum in Switzerland is also helping to raise awareness around the globe.

Further to this, I do personally believe that if one country adopted a Sovereign Money reform, it would act as a catalyst for other countries.  The advantages would quickly become clear, and the main reservation that “it would be an untested experiment” would no longer hold. (By the way, this is the only reservation that the Swiss National Bank has publically voiced).  Switzerland has a chance of being this catalyst!


Would you like to see greater acceptance of private currencies like Bitcoin?

The Swiss Sovereign Money Initiative allows for other currencies (such as Bitcoins, the Swiss WIR, Talents and any other forms of alternative currencies and vouchers) to be used, so long as their usage doesn’t prevent the SNB from fulfilling its mandate to enact a monetary policy in the interest of Switzerland as a whole. If a single alternative currency became so widely used that a crash in this currency could seriously harm the economy, then the SNB would have to intervene. If many competing currencies co-existed, none of which threatened economic stability – these would be allowed. To answer your question, I personally would be happy to see greater acceptance of alternative currencies of all forms, but I do not believe that this alone would ensure a well-functioning and robust economy. For that, the Sovereign Money Reform is necessary.





  • Chris Hulme says:

    One thing that this system (and the proponents of 100% reserve banking) never explain is how much does the volume of money, available for lending, decrease.
    Does it go down to 10% of the existing figure?
    And, if so, is this enough to sustain growth of 2-3% a year that we have come to expect?
    Another question never addressed is what happens to all the existing loans taken out under a 10% fractional reserve system? Are they called in? Or are they retired when they are paid back? Or something else?

    • “”Another question never addressed is what happens to all the existing loans taken out under a 10% fractional reserve system? Are they called in? Or are they retired when they are paid back? Or something else?
      This is indeed a very good question.
      Actually, this is always addressed, or we could never advance reforms.
      The latest, best, easiest to understand rendition of the transition to real money can be found here:


  • When money is issued and functioning as exchange media capable of achieving national economic potential, issued in a quantity that is neither inflationary nor deflationary, it matters not whether it is issued publicly or privately.
    However, since private issuance REQUIRES bank lending, the flow of ‘money’ to meet economic potential and alleviate stagnation cannot be achieved …. being where we are today on the throes of a deeper debt-deflation.
    Do the math for your country.
    In the US, we have tremendous backlogs of both economic needs and available resources that can be tapped, with first five year growth potential, mainly for infrastructure, of around $500 Billion annually.
    Were that privately issued, we would add another $500B plus interest to our unpayable debt backlog.
    Were it government issued, we could buy what we NEED, and have zero increase in private debt.
    That’s why the referendum SHOULD win.
    For the Money System Common

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