7 ms·

Radical Swiss financial reform campaign faces defeat

111 points by mikehotel 8y ago

kensai 8y ago
Interesting. I wonder how the markets will take it in case it passed. Because THAT is the only test that counts...
- pimmen 8y ago
  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.
  - icebraining 8y ago
    I don't see how it's similar to the gold standard; the central bank could still print money.
    - OscarCunningham 8y ago
      You're correct. And conversely as well; during the gold standard banks could still lend money from deposits.
      - nickik 8y ago
        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.
    - pimmen 8y ago
      The money derives its value from something central (wether it's the gold holdings of the country or the printing press) rather than being decentralized.
  - nickik 8y ago
    No they wouldn't because the law doesn't go into effect. The state would first have to debate how it would be implemented and they would not implement something insane. Eventually they would announce how it would work and the SNB would probably just copy the way it is doing now, with a different way of accounting.
- pjc50 8y ago
  Switzerland is an unusual place; for a while it had negative central bank rates, because in its traditional role as financial haven so much foreign capital has been coming into the country that the central bank wants to keep the value of the currency down. Switzerland is not going to be short of capital. The interesting question is, would it have positive or negative effects elsewhere? e.g. if it had been in place when lots of Hungarians took out disasterous CHF-denominated mortgages.
  - kgwgk 8y ago
    Switzerland has negative central bank rates since 2015. So does Sweden. The European Central Bank rate is at zero, and Japan's rate has been slighly negative for a couple of years. We are living interesting times.
tonyedgecombe 8y ago
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 8y ago
  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_Summary_en.pdf http://www.batz.ch/wp-content/uploads/2017/10/Vollgeld_Summa... ; the implementation is not just a 100% reserve requirement but a limitation on interbank lending.
- adynatos 8y ago
  as with every socialist idea, creation of fiat money is entirely controlled by the central government, because it regulates laws requiring private banks to not lend money over a certain amount they actually have (loan-deposit ratio). this ratio was raised repeatedly, until 2008 crisis and now is rising again, because no one aparently learns anything ever.
  - notahacker 8y ago
    Since banks can borrow deposits from other banks, the central government has essentially no control over the lending of an individual private bank (there are also capital ratios, but that's a soft target since banks can increase their capital without receiving any more deposits). Since central banks are mandated to hit a target interest rate by injecting more money into the economy every time the interbank lending rate starts to rise (i.e. every time the banking sector in aggregate wishes to lend out in excess of its loan deposit ratio), they are also unable to limit the quantity of money in the economy without abandoning their interest rate target. In the medium term, central banks exert some control over the level of money in an economy by raising and lowering target interest rates to change the cost of expanding the money supply to people borrowing from private banks. And of course they also have the power to change policies which directly or indirectly affect bank lending. But they don't, under current institutional arrangements, have any direct control over the amount of money created or destroyed by net changes in bank lending.
sschueller 8y ago
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.
- haeffin 8y ago
  It was mainly sold as "prevent illegal foreign gambling sites from making a profit without paying back".
  - BigJono 8y ago
    Literally the exact same bullshit that just effectively banned online poker in Australia earlier this year.
    - raverbashing 8y ago
      It's hard, but people will survive.
      - mseebach 8y ago
        As human civilization progresses, we're trying to move the goal-posts up a bit from "survive".
- hadrien01 8y ago
  How is that bad for net neutrality? It would be a law, the same way child porn is illegal...
  - brainwad 8y ago
    ISPs will be forced to block a blacklist of gambling sites.
    - kzrdude 8y ago
      That's not strictly necessary, the implementation and enforcement could be entirely different than that.
hliyan 8y ago
> 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).
- pjc50 8y ago
  Minimum-duration financial savings products have been a thing for a while, and I can access them easily through my bank's online interface (Halifax)
- dantheman 8y ago
  Yeah, that's normally called a Certificate of Deposit "CD" and locks in the money for a period of time 6 months, 1 year, 4 years at a certain interest rate. In the US banks offer this through websites.
  - kgwgk 8y ago
    Saving accounts work like that in many countries (higher interest rates, limited withdrawals).
    - lazyasciiart 8y ago
      The US has savings accounts with rules like that too.
- notahacker 8y ago
  I don't think there's much consumer demand to have their money locked up for 25 years like a typical mortgage a bank offers its customers though. Someone's got to do the maturity transformation, and it's not like the economy is safer if that's done by pension funds and/or an aftermarket for mortgage-backed securities instead of the banks actually making the lending decision...
YouAreGreat 8y ago
> dangerous experiment It's also an easily reversed experiment, which suggests that the naysayers may fear success more than failure.
- neffy 8y ago
  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 8y ago
    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 8y ago
      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 8y ago
        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
codeflo 8y ago
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.)
- sarabande 8y ago
  I think 100% money is the original economic term for this concept, used by Irving Fisher (see http://realmoneyecon.org/lev2/images/pdfs/100percent_money.pdf http://realmoneyecon.org/lev2/images/pdfs/100percent_money.p...). Also, I think Vollgeld comes from an abbreviation of vollwertiges Geld (full-fledged money), and seems like an appropriate translation of 100% money and sounds good, as well.
  - beefhash 8y ago
    Interestingly, this note was apparently lost on the Swiss government, which uses "sovereign money" as English translation instead[1]. https://www.admin.ch/gov/en/start/documentation/votes/20180610/Sovereign-Money-Initiative.html https://www.admin.ch/gov/en/start/documentation/votes/201806...
- lordnacho 8y ago
  Seems wrong to me as well. I think the point of the translation is to say "non-fractional reserve" money, for which "real" is a defensible but not fantastic shorthand. "Fully backed" might make sense.
  - alter_eco123 8y ago
    > "Fully backed" might make sense. "Real" is accurate. When gold was used as (real) money, it wasn't "backed" by anything. It's just gold.
- neffy 8y ago
  I think it´s the german version of the 1932 Fisher Full Reserve proposal.
OscarCunningham 8y ago
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?
- zik 8y ago
  It's not a ban on loans, it's a ban on commercial banks creating money from nothing when they make loans.
  - neffy 8y ago
    However, effectively it would remove at least half the total loan supply, which would probably not be a good thing.
    - repolfx 8y ago
      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.
      - edanm 8y ago
        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.
raverbashing 8y ago
> 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.
- iamgopal 8y ago
  Studies shows determined 25 percent can change the result.
  - lactau 8y ago
    Not if they are opposed by determined 50 percent.
  - lazyasciiart 8y ago
    Not in a vote - that's about changing the attitudes of the rest of society over time.
roymurdock 8y ago
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).
OscarCunningham 8y ago
Looks like it was voted down: https://www.ft.com/content/686e0342-6c97-11e8-852d-d8b934ff5ffa https://www.ft.com/content/686e0342-6c97-11e8-852d-d8b934ff5...
- tim333 8y ago
  Yeah >just 26 per cent supported plans to strip banks of their ability to “create” money
  - mirekrusin 8y ago
    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.
deleted 8y ago
[deleted]
alexandercrohde 8y ago
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..."

111 points by mikehotel 8y ago

kensai 8y ago

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

pimmen 8y ago
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.
- icebraining 8y ago
  I don't see how it's similar to the gold standard; the central bank could still print money.
  - OscarCunningham 8y ago
    You're correct. And conversely as well; during the gold standard banks could still lend money from deposits.
    - nickik 8y ago
      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.
  - pimmen 8y ago
    The money derives its value from something central (wether it's the gold holdings of the country or the printing press) rather than being decentralized.
- nickik 8y ago
  No they wouldn't because the law doesn't go into effect. The state would first have to debate how it would be implemented and they would not implement something insane. Eventually they would announce how it would work and the SNB would probably just copy the way it is doing now, with a different way of accounting.
pjc50 8y ago
Switzerland is an unusual place; for a while it had negative central bank rates, because in its traditional role as financial haven so much foreign capital has been coming into the country that the central bank wants to keep the value of the currency down. Switzerland is not going to be short of capital. The interesting question is, would it have positive or negative effects elsewhere? e.g. if it had been in place when lots of Hungarians took out disasterous CHF-denominated mortgages.
- kgwgk 8y ago
  Switzerland has negative central bank rates since 2015. So does Sweden. The European Central Bank rate is at zero, and Japan's rate has been slighly negative for a couple of years. We are living interesting times.

tonyedgecombe 8y ago

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 8y ago
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_Summary_en.pdf http://www.batz.ch/wp-content/uploads/2017/10/Vollgeld_Summa... ; the implementation is not just a 100% reserve requirement but a limitation on interbank lending.
adynatos 8y ago
as with every socialist idea, creation of fiat money is entirely controlled by the central government, because it regulates laws requiring private banks to not lend money over a certain amount they actually have (loan-deposit ratio). this ratio was raised repeatedly, until 2008 crisis and now is rising again, because no one aparently learns anything ever.
- notahacker 8y ago
  Since banks can borrow deposits from other banks, the central government has essentially no control over the lending of an individual private bank (there are also capital ratios, but that's a soft target since banks can increase their capital without receiving any more deposits). Since central banks are mandated to hit a target interest rate by injecting more money into the economy every time the interbank lending rate starts to rise (i.e. every time the banking sector in aggregate wishes to lend out in excess of its loan deposit ratio), they are also unable to limit the quantity of money in the economy without abandoning their interest rate target. In the medium term, central banks exert some control over the level of money in an economy by raising and lowering target interest rates to change the cost of expanding the money supply to people borrowing from private banks. And of course they also have the power to change policies which directly or indirectly affect bank lending. But they don't, under current institutional arrangements, have any direct control over the amount of money created or destroyed by net changes in bank lending.

sschueller 8y ago

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.

haeffin 8y ago
It was mainly sold as "prevent illegal foreign gambling sites from making a profit without paying back".
- BigJono 8y ago
  Literally the exact same bullshit that just effectively banned online poker in Australia earlier this year.
  - raverbashing 8y ago
    It's hard, but people will survive.
    - mseebach 8y ago
      As human civilization progresses, we're trying to move the goal-posts up a bit from "survive".
hadrien01 8y ago
How is that bad for net neutrality? It would be a law, the same way child porn is illegal...
- brainwad 8y ago
  ISPs will be forced to block a blacklist of gambling sites.
  - kzrdude 8y ago
    That's not strictly necessary, the implementation and enforcement could be entirely different than that.

hliyan 8y ago

> 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).

pjc50 8y ago
Minimum-duration financial savings products have been a thing for a while, and I can access them easily through my bank's online interface (Halifax)
dantheman 8y ago
Yeah, that's normally called a Certificate of Deposit "CD" and locks in the money for a period of time 6 months, 1 year, 4 years at a certain interest rate. In the US banks offer this through websites.
- kgwgk 8y ago
  Saving accounts work like that in many countries (higher interest rates, limited withdrawals).
  - lazyasciiart 8y ago
    The US has savings accounts with rules like that too.
notahacker 8y ago
I don't think there's much consumer demand to have their money locked up for 25 years like a typical mortgage a bank offers its customers though. Someone's got to do the maturity transformation, and it's not like the economy is safer if that's done by pension funds and/or an aftermarket for mortgage-backed securities instead of the banks actually making the lending decision...

YouAreGreat 8y ago

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

neffy 8y ago
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 8y ago
  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 8y ago
    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 8y ago
      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

codeflo 8y ago

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.)

sarabande 8y ago
I think 100% money is the original economic term for this concept, used by Irving Fisher (see http://realmoneyecon.org/lev2/images/pdfs/100percent_money.pdf http://realmoneyecon.org/lev2/images/pdfs/100percent_money.p...). Also, I think Vollgeld comes from an abbreviation of vollwertiges Geld (full-fledged money), and seems like an appropriate translation of 100% money and sounds good, as well.
- beefhash 8y ago
  Interestingly, this note was apparently lost on the Swiss government, which uses "sovereign money" as English translation instead[1]. https://www.admin.ch/gov/en/start/documentation/votes/20180610/Sovereign-Money-Initiative.html https://www.admin.ch/gov/en/start/documentation/votes/201806...
lordnacho 8y ago
Seems wrong to me as well. I think the point of the translation is to say "non-fractional reserve" money, for which "real" is a defensible but not fantastic shorthand. "Fully backed" might make sense.
- alter_eco123 8y ago
  > "Fully backed" might make sense. "Real" is accurate. When gold was used as (real) money, it wasn't "backed" by anything. It's just gold.
neffy 8y ago
I think it´s the german version of the 1932 Fisher Full Reserve proposal.

OscarCunningham 8y ago

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?

zik 8y ago
It's not a ban on loans, it's a ban on commercial banks creating money from nothing when they make loans.
- neffy 8y ago
  However, effectively it would remove at least half the total loan supply, which would probably not be a good thing.
  - repolfx 8y ago
    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.
    - edanm 8y ago
      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.

raverbashing 8y ago

> 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.

iamgopal 8y ago
Studies shows determined 25 percent can change the result.
- lactau 8y ago
  Not if they are opposed by determined 50 percent.
- lazyasciiart 8y ago
  Not in a vote - that's about changing the attitudes of the rest of society over time.

roymurdock 8y ago

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).

OscarCunningham 8y ago

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

tim333 8y ago
Yeah >just 26 per cent supported plans to strip banks of their ability to “create” money
- mirekrusin 8y ago
  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.

deleted 8y ago

[deleted]

alexandercrohde 8y ago

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..."