Clive Crook: Let's watch the Swiss get radical and see what happens


By Clive Crook
Bloomberg News
Wednesday, June 6, 2018

This Sunday Swiss voters will decide whether to try what may be the boldest financial experiment ever contemplated -- dismantling their orthodox banking system and building a new one based on so-called sovereign money, or Vollgeld.

The proposal is probably far too radical to have much chance of success. Yet that's a pity. The idea of sovereign money isn't crazy. It has a long and distinguished academic pedigree and, as a practical matter, there's a lot to recommend it. Switzerland would do the world a favor by giving the plan a try. At the very least, give the Vollgeld sponsors some credit (forgive the expression) for reviving an interesting debate.

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Vollgeld, the Chicago Plan, narrow banking, limited-purpose banking -- these and other variants of the same basic idea start from the fact that in a conventional financial system, banks as well as governments can create money. How so? Consider what happens when a bank issues a loan. It credits the account of the lender with a deposit, and that deposit is by definition money. In this way, banks can expand their balance sheets, simultaneously adding to their assets (loans) and liabilities (deposits), expanding the supply of money at will.

Vollgeld's big idea is that this power to create money should be taken away from banks and strictly reserved for the government. ...

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