Swiss voters this past week soundly defeated a “sovereign money” initiative, a referendum which would have led a fundamental change to monetary system in the country — dramatically limiting private bank lending.
Nevertheless, 25% of the country did vote “yes” on the referendum, which if approved would have ushered in a financial system similar to the way Bitcoin is designed to work.
Voters were in practice asked to approve a system that would end fractional reserve banking, the common practice in global banking which allows lending out more capital than a bank controls.
If approved, Swiss banks and financial institutions would have been prohibited from issuing loans or credit beyond cash on hand.
Essentially, it would be like asking a person with little savings and limited work income to cut up his her credit cards on the spot.
The sovereign money initiative was dealt an overwhelming loss. Yet 500,000 Swiss people did vote in favor.
If approved, the sovereign money initiative would have given the Swiss central bank sole authority over creating currency. Any new money in the economy would depend on the central bank, not the creditworthiness of private banks.
Critics of the sovereign money initiative compared it to Bitcoin in order to illustrate how destabilizing such a system would be, if approved.
S0-called sovereign money is like Bitcoin in the sense that a country that adopts such a program would become a non-debt based monetary system.
The attraction of the idea, however unworkable it might be to businesses and borrowers, is that the economy would no longer dependent on large banks and their propensity to over-lend in boom times.
Given the global implications of the 2008 financial crisis, the logic of lending no more than you have is appealing — if a strict financial diet for most.
“The underlying idea is that commodity-like money would enable individual possession of money without dependence on an issuer which may suddenly become unable to make good on its promise,” said Beat Weber of the Austrian National Bank.
The sovereign money initiative loss shows that most people are still hesitant to embrace the idea of digital currencies.
While many governments are wary of cryptocurrencies, many others are considering the technology behind crypto.
The Swiss central bank, for instance, is actively looking into how blockchain technology can be adapted to help keep track of its finances.
Swiss National Bank president Thomas Jordan said in early 2018 that bank may eventually run using blockchain.
Jordan nevertheless was a staunch sovereign money critic. He saw the proposal as a “dangerous experiment.”
Proponents of the initiative, however, believe that the loss has only delayed the inevitable.
Emma Dawnay is a board member of the group MoMo which was responsible for the sovereign money initiative.
Dawnay saw the adaption of cryptocurrency as the next legislative phase after the sovereign money initiative.
She said that crypto “could have been used under the system we were proposing.”
“Cryptocurrency and the blockchain does look like where we’re heading,” Dawnay said.
She is undeterred after the loss. In fact, she believes that a Swiss government adoption of cryptocurrency is now a sooner-or-later eventuality.
“Blockchain technology could be how the Swiss government could try to bring debt-free new money into the economy,” she said.
Dawnay believes that once people better understand how fiat currencies are created they will embrace cryptocurrencies.
“The way money currently comes into circulation still isn’t well understood,” she said.
“Before we can expect change we need to educate people about how money is created and the established institutions which benefit from it.”
Digital currency is slowly making inroads in Switzerland in any case.
Privately operated Hypothekarbank Lenzburg bank became the first Swiss bank to offer business accounts to blockchain and cryptocurrency companies earlier this month.