
Radical Swiss financial reform campaign faces defeat - mikehotel
https://www.reuters.com/article/us-swiss-vote-sovereign/swiss-vote-on-whether-to-introduce-real-money-plan-idUSKBN1J60C0
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codeflo
I wonder about the translation, is "real money" an accepted economic term for
this concept? Because "Voll" as a prefix usually means complete or whole,
rather than "real", as in "Vollmilch" (whole milk) and "Vollkorn" (whole
grain). (Source: I'm German.)

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neffy
I think it´s the german version of the 1932 Fisher Full Reserve proposal.

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blattimwind
*Swiss version

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majewsky
German as in language, not German as in the country. Vollgeld as a term also
appears in German economic discussions (though mostly on the left, not so much
in the mainstream).

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OscarCunningham
Looks like it was voted down:
[https://www.ft.com/content/686e0342-6c97-11e8-852d-d8b934ff5...](https://www.ft.com/content/686e0342-6c97-11e8-852d-d8b934ff5ffa)

~~~
tim333
Yeah

>just 26 per cent supported plans to strip banks of their ability to “create”
money

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mirekrusin
Sadly unfair, I would also like to earn X and hold 2% reserve, ie. have 50x
money to my disposition. My investments yielding 1% would effectively have 50%
return. Magic.

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hliyan
> Contrary to common belief, most money in the world is not produced by
> central banks but is instead created by commercial lenders when they lend
> beyond the deposits they hold for savers.

Sounds like an attempt to keep the loan-deposit ratio (LTD) at or below 1, so
that the bank is only lending money that it actually holds in the form of
deposits.

I'm told by a lot of experts that this is a bad idea and it will hurt the
entire industry and contract the economy, but I'm wondering if it's possible
to put a soft lock (like a semi-fixed-deposit) on portion of a customers
deposits and use that to finance lending. As a customer, I personally wouldn't
mind being able to put soft locks on parts of my savings in return for a
higher interest rate (preferably through an online interface).

~~~
repolfx
_I 'm told by a lot of experts that this is a bad idea_

That probably means it's a good idea ;)

Full reserve banking isn't quite what is being voted on here, but if it were
to be implemented it wouldn't be so different to what Switzerland already has.

I have a Swiss account with UBS. Interest payments on my accounts are
effectively zero. Not quite zero but so close it makes no odds. I am happy
about this because the SNB is actually trying to force interest rates negative
- like most banks, UBS is shielding me from negative interest rates (i.e.
direct confiscation of savings) using its own profit margin.

However, the issue remains that I get no yield on my money. Or, no, wait,
actually I do, because my banks also offers many different kinds of investment
funds with high degrees of liquidity, transparency about what they do, their
performance and their different degrees of risk. So I put a big chunk of my
money into these sorts of funds (and yes yes, I know, there are better funds
out there, I don't _only_ use UBS).

I think this approach is better for two reasons:

1\. It's always clear how much of my money is effectively risk-free deposits,
and how much is "working at risk".

2\. It divorces retail banking services from investment services. For instance
if I happen to like a banks customer service, e-banking portal, mobile app,
credit card offerings or whatever, I can benefit from those, without needing
to take it as a bundle with perhaps riskier lending practices.

The low risk funds I use are mostly short-medium term loans to Swiss business,
but I could invest in mortgage funds if I wanted to.

It seems to me that if all banks in Switzerland had to go full reserve, then
it'd mean relatively little change for people like me. Some bank customers who
don't explicitly invest their money would now have to, if they didn't want to
lose yield, but inflation in Switzerland is quite low so I suspect some people
would be happy with just knowing their money is where they left it and is
going to stay there. Investment isn't for everyone.

~~~
lgbr
> > I'm told by a lot of experts that this is a bad idea

> That probably means it's a good idea ;)

This is just pure contrarianism. Experts also say it's a bad idea not to have
clean drinking water, reliable electricity, and seatbelts in cars.

And believe it or not, there is a huge amount of data on what kinds of policy
in banking work and what don't, leading experts to conclusions like these.
We're not talking about a few naysayers, either. The Swiss National Bank
themselves, who will be put in charge of all lending if this is implemented,
say this is a bad idea.

~~~
sgift
> This is just pure contrarianism. Experts also say it's a bad idea not to
> have clean drinking water, reliable electricity, and seatbelts in cars.

Difference: There's scientific evidence for the experts opinion in all these
cases. Economics? That's more or less just crystal ball reading with a
scientific shim on the top.

~~~
roenxi
The line of thinking here deserves expounding. The discipline of economics is
very important, but there needs to be some care about trusting the opinions of
economists.

The opinions of an economist are worth very much, because listening to them
sets up situations were it is easy for someone with an economics degree to
push an agenda. But economists do have a lot to offer with observations like
"this is very similar to the [suchandsuch incident] of [1887] in [Somewhere]",
which is worth listening to. The limitations that surround economic
'experiments' are so severe it should be treated more like history and less
like physics. Thomas Piketty with Capital in the 21st century is a great
example of what I'm thinking - more history and data than theory, but some
theory to provide structure to the data.

If science has a measure of quality, then that quality is the accuracy of its
predictions. That ties in very closely to the ability to conduct experiments
and collect accurate data. Economics as applied is a highly political process,
which hampers both the perceptions and reality of how fair the experiments
are.

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bingoboingo33
The "discipline of economics" has no predictive power whatsoever. All it
offers are "explanations" that can't be translated into actionable policies.

~~~
mseebach
Oh, it has plenty of predictive power, it's just not evenly distributed. When
economists weigh in on contemporary politics, there are usually a lot of
assumptions that doesn't quite make it into the soundbyte (and I don't want to
pin this solely on the press, there are plenty of economists that are happy
with this situation, as long as "their side" gets a boost). This, however, is
the case for all members of the "political" sciences.

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sschueller
There is also a vote against online gambling which is bad for net neutrality.

It was brought up by local gambling interest but sold as protecting gambling
addicts.

~~~
hadrien01
How is that bad for net neutrality? It would be a law, the same way child porn
is illegal...

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brainwad
ISPs will be forced to block a blacklist of gambling sites.

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kzrdude
That's not strictly necessary, the implementation and enforcement could be
entirely different than that.

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sschueller
I hope so

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OscarCunningham
I don't really understand how this would work. If this passed and I was a
Swiss person wanting a mortgage, where would I go to get one?

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zik
It's not a ban on loans, it's a ban on commercial banks creating money from
nothing when they make loans.

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neffy
However, effectively it would remove at least half the total loan supply,
which would probably not be a good thing.

~~~
repolfx
Why not?

Was the last global financial crisis not caused by idiotically lax lending
conditions, made possible by - amongst other things - the fact that loans were
far too abundant and cheap? And that was in turn because banks can lend
deposits without blocking access to that same money by the depositors?

If the loan supply was significantly tightened, this would be "bad for the
economy" in the sense that there'd be less economic activity. However that's
not inherently a bad thing. Digging holes in the ground and filling them up
again is economic activity, but it's still a waste of time.

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edanm
Because borrowing money is often a good thing. Most people borrow money when
they're younger, because their earning power is smaller, and they know they
can repay it in the future. E.g. to finance their education. Most new
businesses start off by costing their owners tons of money and not earning
them anything, but again, some of them end up being an overall economic
success.

Sure, if you're rich enough, you can self-finance your education or your new
business, but if not, a loan is what you're looking for.

~~~
repolfx
_Most people loan money when they 're younger_

I think you mean borrow. Loan would be the opposite.

You're arguing that loans are useful. Nobody is arguing the opposite. Yes,
loans are useful, but when the people making them have nothing at stake
because they are creating the money from nothing, you get a lot of low quality
lending to low quality investments that are unlikely to pay back (put another
way, are bad investments).

~~~
mseebach
They're not creating money from _nothing_ , hence _fractional_. And to the
extent they don't have anything at stake, it's because they get bailed out,
which is a different concern altogether.

~~~
spiralx
> They're not creating money from nothing, hence fractional.

No, banks do create money through loans - lending occurs first, then reserve
requirements are met afterwards. See for instance this research paper from
Standard & Poor's:

Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves

[https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_...](https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_Me_8_14_13.pdf)

The idea of "fractional-reserve banking" isn't accurate when it comes to
modern banking.

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roymurdock
This would give the central Bank more control over monetary policy using the
franc, but would also probably decrease demand for the franc, and slow down
Swiss economic activity.

I would imagine banks would start issuing non-reserve-backed loans in other
currencies, and it would make lending just marginally more expensive (exchange
rate is now an extra barrier to getting a loan).

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tonyedgecombe
I was under the impression that central banks regulated the banks to control
the creation of money, if this passed wouldn't they just print what they would
have allowed anyway.

~~~
pjc50
There's a reserve capital requirement at the moment, but it's not one-to-one.

More detail: [http://www.batz.ch/wp-
content/uploads/2017/10/Vollgeld_Summa...](http://www.batz.ch/wp-
content/uploads/2017/10/Vollgeld_Summary_en.pdf) ; the implementation is not
just a 100% reserve requirement but a limitation on interbank lending.

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alexandercrohde
I wish this article would take a more scientific tone. It seems assert a lot
of things about what are "likely" and "could" happen, in economics, which I
understand to be a non-objective non-science.

I'd be content if they threw in little tidbits about "No economists can
accurately predict recessions and thus economies are very poorly understood.
One theory is..."

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raverbashing
> The latest polls showed the initiative unlikely to succeed with 54 percent
> of respondents opposing the plan and 34 percent in favor.

So, nothing is going to happen.

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iamgopal
Studies shows determined 25 percent can change the result.

~~~
lazyasciiart
Not in a vote - that's about changing the attitudes of the rest of society
over time.

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YouAreGreat
> dangerous experiment

It's also an easily reversed experiment, which suggests that the naysayers may
fear success more than failure.

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neffy
Well sure. The history of economic experiments is that they do end up
eventually getting reversed. After a period of death and destruction,
revolution, economic collapse, starvation and dictatorship.

If there´s one lesson we really need to get over to the Economists from
Computer Science it´s that they have to stop experimenting with the production
system.

~~~
dpatru
Inflation of the money supply allows governments to finance war[1]. Reducing
inflation would have the opposite effect. It would lead to greater savings,
which would lead to lower interest rates, which would lead to more investment,
which would lead to more productivity, prosperity, and wealth.

[1]:
[https://twitter.com/ydemombynes/status/985560599248756736](https://twitter.com/ydemombynes/status/985560599248756736)

~~~
notahacker
The Swiss Government going on a war-declaring spree using loans from private
banks is not a credible threat to the Swiss economy.

Massive instability in the lending market and a higher average cost of
borrowing because of frequent short term credit crunches as the money supply
is delinked from borrower demand is.

~~~
dpatru
I'm not a finance expert, but my intuition is that the market is already good
at smoothing out this kind of instability. This is what market makers [1] do
and there is no requirement that a market maker needs the ability to make
money.

Borrowing costs may be higher because this proposal removes some "free" money
that banks can currently lend out. But maybe interest rates will stay the same
and instead checking account fees will rise. This could induce some checking
account holders to move some of their money to term loans to the bank which
the bank could then lend out. It is not clear that interest rates have to
rise.

> the money supply is delinked from borrower demand

The money supply available to meet borrower demand need not be created. It
already is partially provided by people lending their money for a term to the
bank. This proposal merely says that the bank may not use checking account
money to meet borrower demand, i.e., it may not represent to a checking
account holder that his money is available when in fact it has been lent out
to someone else.

[1]:
[https://en.wikipedia.org/wiki/Market_maker](https://en.wikipedia.org/wiki/Market_maker)

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notahacker
We've tested the ability of the market to smooth out instability caused by
attempting to artificially fix monetary aggregates. We got high and wildly
fluctuating interest rates and record levels of unemployment. And that was a
_looser_ policy regime than the one being proposed.

Market makers do not sit around with huge piles of uninvested cash waiting for
the day that loan demand to exceed its supply on loanable funds, and consumers
with interest-free deposit accounts are not exactly the ideal people to make
markets. And _of course_ when loan demand exceeds the amount of cash available
to be loaned at that point in time interest rates rise. That's Econ 101.

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kensai
Interesting. I wonder how the markets will take it in case it passed. Because
THAT is the only test that counts...

~~~
pimmen
The exact day it passes, the Swiss banking stocks would likely crash because
their ability to be in control and pass the risk to the central bank (as the
lender of last resort) is a big portion of their value.

But, what happens in the long run to the Swiss markets? I would suspect it’s
not good either, it mirrors how the money worked while on the gold standard
too much for my taste in that rapid responses to recessions becomes much more
complicated.

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icebraining
I don't see how it's similar to the gold standard; the central bank could
still print money.

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OscarCunningham
You're correct. And conversely as well; during the gold standard banks could
still lend money from deposits.

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nickik
Absolutely that is what 100% reserve people don't understand.

The money supply under the gold standard was highly flexible.

Banks depending on demand (or velocity) automatically raised or lowered their
reserves.

Meaning that if velocity is slow, banks would automatically lend more and
create stable monetary conditions. Basically what central banks now do by
having a bunch of burocrates look at statistics.

