The Sovereign Money Initiative in Switzerland: An Economic Assessment

Philippe Bacchetta

Cahiers de Recherches Economiques du Département d'économie from Université de Lausanne, Faculté des HEC, Département d’économie

Abstract: The Sovereign Money Initiative will be submitted to the Swiss people in 2018. This paper reviews the arguments behind the initiative and discusses its potential impact. I argue that several arguments are inconsistent with empirical evidence or with economic logic. In particular, controlling sight deposits neither stabilizes credit nor avoids financial crises. Also, assuming that deposits at the central bank are not a liability has implications for fiscal and monetary policy; and Benes and Kumhof (2012) do not provide support for the reform as they do not analyze the proposed Swiss monetary reform and their closed-economy model does not fit the Swiss economy. Then, using a simple model with monpolistically competitive banks, the paper assesses quantitatively the impact of removing sight deposits from commercial banks balance sheets. Even though there is a gain for the state, the overall impact is negative, especially because depositors would face a negative return. Moreover, the initiative goes much beyond what would be the equivalent of full reserve requirement and would impose severe constraints on monetary policy; it would weaken financial stability rather then reinforce it; and it would threaten the trust in the Swiss monetary system. Finally, there is high uncertainty both on the details of the reform and on its impact.

Keywords: Reserve requirements; sovereign money; money creation (search for similar items in EconPapers)
JEL-codes: E41 E42 E51 (search for similar items in EconPapers)
Pages: 50 pp.
Date: 2017-09
New Economics Papers: this item is included in nep-mac, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: The sovereign money initiative in Switzerland: an economic assessment (2018)
Working Paper: The Sovereign Money Initiative in Switzerland: An Economic Assessment (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:lau:crdeep:17.16

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