A sovereign money system would hurt our country as a whole and also make it difficult for the Swiss National Bank (SNB) to fulfil its mandate. The SNB, like the Federal Council and Parliament, therefore firmly opposes the initiative. But what is the aim of the initiative? According to its authors, the goals are ‘crisis-safe money’ and a reduction in the burden on taxpayers. To achieve these, they propose that customers’ sight deposits at commercial banks be converted into so-called sovereign money accounts, and that ‘debt-free’ payments be made by the SNB to the state or the people. Furthermore, the initiative’s authors want to separate the creation of money from the granting of loans because they regard money creation by commercial banks as the main cause of financial crises. Sovereign money makes lending more complicated The Swiss sovereign money initiative testifies to a deep mistrust of our monetary system in general, and of the current credit system in particular. Yet, credit is a cornerstone of our economic system. It is the tool whereby capital that is not needed at one point in the system can be used productively elsewhere. The credit system facilitates projects – in the areas of consumption and investment alike – which would not be possible otherwise, and thereby makes our economy dynamic and flexible. This promotes growth and prosperity. Money and credit have always been closely linked. Today, money creation and lending take place in a two-tier system, namely via the SNB and the commercial banks.

One approach to this problem would be to harmonize the diverse insolvency laws in the various jurisdictions in which globally active firms have significant operations. But achieving this objective will be hard and take many years at a minimum. This is one reason to require additional loss-absorbing capacity for systemically important firms, most (if not all) of which tend to be complex global organizations. Such a surcharge would be a mechanism to reduce the probability of failure for such firms below that of smaller firms. A surcharge for systemically important financial institutions has two motivations. First, it compensates for the distortion created by the fact that a large financial firm may still be resolved differently than smaller firms and that this could conceivably, by being an orderly resolution process, reduce the costs imposed upon creditors. To the extent creditors see this as a benefit, this might enable large banks to retain some funding advantage over smaller firms not likely to be resolved in the same fashion. Second, it recognizes the large costs imposed on the broader financial system by the failure of systemically important banks. Such an approach is being pursued both internationally and in the United States. The recent Governors and Heads of Supervision meeting in Basel, for example, endorsed additional loss-absorbing capacity for systemically important firms. Similarly, the Dodd-Frank Act provides that the Federal Reserve shall establish prudential standards for systemically important financial companies, including capital and liquidity standards that are “more stringent” than for other institutions that do not present systemic risk.