In a national vote on Sunday, Switzerland rejected a proposal to radically change the way banks lend money and would have given the Swiss National Bank (S.N.B.) a monopoly power over creating money through bank loans.

More than 75 percent of voters opposed the idea called “Vollgeld” also known as the country’s Sovereign Money Initiative, which would have prohibited commercial banks from creating more money than they held in deposits. Vollgeld would have stipulated that only the S.N.B. had the power to lend out more money than they hold in deposits, which then creates money as a byproduct of extending credit.

S.N.B. Chairman Thomas Jordan, a strong critic of the initiative, had warned the sovereign money initiative was “a dangerous experiment, which would inflict great damage on our economy.”

“Adoption of the initiative would represent a tectonic shift in our proven monetary and economic system, which has developed over a period of many years. Sovereign monetary is an unnecessary and dangerous experiment which would inflict great damage on our country,” S.N.B. said in a statement on their website.

The initiative’s proponents argue that the proposal would enhance the integrity of Swiss financial markets and protect the country from boom or bust cycles. They also argued that commercial banks often abuse their privilege as institutions that lend and create money; often lending money for non-productive purposes and causing financial crises and soaring asset prices.

On the contrary, the S.N.B. said that the implementation of “the sovereign money initiative” would not reduce asset and credit bubbles and would lead to slower growth as it would limit lenders from obtaining credits.

Supporters of Vollgeld cited the 2007/2008 global crisis as the need for a reform in the monetary system. Vollgeld campaigners state that the sovereign money policy will protect people’s interest by shutting down insolvent banks and prevent them from receiving bailouts on the taxpayers’ dime.

Reactions from investors, bankers and the initiative supporters

Executives from many well-reputed banks celebrated the referendum’s result, saying that the outcome proved the people trusted the established banking system.

According to Herbert Scheidt, chairman of the Swiss Bankers Association, the poll’s result indicated Swiss supported “the existing, stable and high-performing economic and monetary system.

The country’s Finance Minister Ueli Maurer said that implementing such a new proposal would have raised many questions and caused trouble in the financial markets.

“Implementing such a scheme, which would have raised so many questions, would have been hardly possible without years of trouble,” Maurer said.

Vollgeld backers vowed not to give up and will continue to raise alarm about the existing banking system.

“Our goal is that money should be in the service of the people and not the other way around and we will continue to work on it,” campaign spokesman Raffael Wuethrich said.

 

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