is that money creation is not a privilege through which commercial banks can feather their own nests. a bank can grant loans when there is customer demand and it has central bank money at its disposal. to this end it is important that other customers are prepared to hold sight deposits at the bank. here the bank is in competition with other banks. if the bank is not competitive, customers will be unwilling to apply for loans or hold sight deposits there. in granting loans, the bank also takes a business risk. thus, banks do not ‘ create money out of thin air ’. rather, their money creation is the product of intermediation between savers and borrowers, and is made possible by the fact that customer sight deposits do not have to be fully covered by central bank money. 1 sovereign money would radically change our current system. in a sovereign money system, a bank is no longer permitted to use its customers ’ sight deposits to finance loans. instead, it is obliged to call solely on investors who provide it with money for loans on a more long - term basis. these may be customers with savings deposits, investors on the capital market, other commercial banks, or even the snb, which can grant the bank a loan. because sovereign money impairs the useful intermediary function played by banks in the monetary system today, lending would become more difficult and complicated – to the detriment of customers, be they savers or borrowers. for more on maturity transformation as a traditional bank function and its importance to the economy, cf. jordan, thomas j., how money is created by the central bank and the banking system, speech held at the zurcher volkswirtschaftlichen gesellschaft, zurich, 16 january 2018. page 3 / 8 the initiative ’ s undeliverable promises financial stability so, what benefits do the initiative ’ s authors see in sovereign money? they want to separate the creation of money from the granting of loans because they believe this will enhance financial stability. to achieve this goal, they call for customers ’ sight deposits to be held in so - called sovereign money accounts as off - balance sheet items, just like securities custody accounts are today. this offers security in as far as this money is not at risk should the bank fail. however, barring the banking system from creating money is the wrong approach to take. in financial crises, savers and investors lose money for two reasons : first and foremost, because their pension funds and direct investments such

as stocks, bonds and real estate lose value, and also second, because taxpayer money has to be used to rescue banks. financial crises occur when risks are underestimated and price expectations of investments are exaggerated. this can lead to credit and asset price bubbles which sooner or later burst. when banks do not hold enough equity capital to absorb the losses they incur, they fail. sovereign money would do nothing to change this situation. risks can be underestimated and future returns overestimated in a sovereign money system too. even without recourse to sight deposits, banks can grant loans which are too risky, hold too few provisions for times of crisis and become insolvent if a bubble bursts. moreover, a key problem in the financial crisis was banks ’ heavy reliance on short - term financing from the money market. these interbank loans proved to be a less stable source of financing than private customers ’ sight deposits ; in fact they dried up at the very start of the financial crisis in 2008. sovereign money would not help to eliminate this risk of instability either. there are other, far more effective approaches to stave off credit and asset price bubbles than sovereign money. the significant increase in the capital and liquidity requirements for banks in the aftermath of the financial crisis is one such approach. macroprudential tools such as the countercyclical capital buffer are an additional means of strengthening our financial system. but a liberal economic system entirely devoid of crises is an illusion. to prevent crises altogether would ultimately mean to constrain the economy to such an extent that our prosperity would be significantly impaired in the longer term. however, it is possible to limit macroeconomic risks to an acceptable level using appropriate regulatory measures. this is where we have directed our efforts since the financial crisis and we are continuing to work closely on this with other parties at national and international level. ‘ debt - free ’ payments to the confederation, cantons or citizens the initiative is likewise not able to deliver on its second promise to reduce the burden on citizens through ‘ debt - free ’ payments by the snb to the confederation, the cantons or the people. although ‘ debt - free ’ payments seem attractive at first glance, they will not bring any financial benefit to the people in the long term, despite what the initiative ’ s authors would have us believe. a sovereign money system will not turn the snb into a cash cow. page 4 / 8 switzerland ’ s prosperity is determined not by the way money is created