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For a website that proclaims the importance of getting the word out, I didn’t see any description of what this “sovereign money” proposal actually is. What is being proposed and why?
[0] https://www.vollgeld-initiative.ch/fa/img/English/2015_10_22...
If banks create money on their own for lending, wouldn't that cause an uncontrollable chain reaction on the valuation of the currency, on the ability to control inflation (to some extent) by policy measures like interest rates and other things?
Any explanations, or better, links to articles would be helpful.
I have to admit to not understanding this, though I think I know somewhat well about money. Isn't this "sovereign money" the way it is in other countries, where banks either have money deposited by some customers and/or borrowings from a central (government controlled) bank or reserve that controls the total amount of the currency/money? If banks create money on their own for lending, wouldn't that cause an uncontrol…
Customer 1 = Investor, has 100 cash and deposits it into a bank account
Customer 2 = Borrower, borrows 100 from the bank
Customer 3 = Restaurant, provides a service for Borrower. Borrower pays a 100, and Restaurant deposits it to it's bank account.
This is how the "sovereign money" travels: Investor -> Borrower -> Restaurant
But the customers see the following account balances
Investor : 100
Borrower : -100 (owes the bank 100)
Restaurant : 100
If now Investor and Restaurant both want to withdraw their money the Bank would be in trouble. The bank only has 100 "sovereign money" on their books. Investor and Restaurant won't care who owes the bank, they want their money.
But the solution for this would be easy, Investor must be given the choice if he wants to allow/disallow the bank to loan out his deposit. Similarly how it works with long positions at a brokerage firm.
I have to admit to not understanding this, though I think I know somewhat well about money. Isn't this "sovereign money" the way it is in other countries, where banks either have money deposited by some customers and/or borrowings from a central (government controlled) bank or reserve that controls the total amount of the currency/money? If banks create money on their own for lending, wouldn't that cause an uncontrol…
(please don't hesitate to correct me if I'm wrong) Say there are 3 customers at a single bank. Customer 1 = Investor, has 100 cash and deposits it into a bank account Customer 2 = Borrower, borrows 100 from the bank Customer 3 = Restaurant, provides a service for Borrower. Borrower pays a 100, and Restaurant deposits it to it's bank account. This is how the "sovereign money" travels: Investor -> Borrower -> Restauran…
I've heard people say that the fractional reserve system causes the boom and bust cycle, because when banks lend money, the create the principal not the interest which leads to a shortfall at some point. Not sure if this is right tho.
Does "Banks won’t be able to create money for themselves any more" mean the same as ending fractional reserve banking, or am I misunderstanding things?
Perhaps, but it will be closer to banning bank lending (as it is fundamentally different from lending between individuals). "Fractional reserve" is just a convenient scapegoat, as banks, once the rules and numbers are reviewed, do not lend from reserves. Any time they approve a loan, new money is put into circulation.
And what happens to all the profits from money printing ? Why, that goes to the banks, of course.
This proposal seems to simply be to only allow the central bank to lever up, and force Swiss banks to become old-US-style "investment banks".
The issue with that is simple: if some banks are allowed to print money (with profits going to the richest, and everyone or "the taxpayer" guaranteeing the loans, of course), and others are not, the banks that are allowed to print money are going to marketshare, profits, ... and counterintuitively, when the economy is expanding, historically even the people they lend to.
It is looking more and more like the economy is reconfiguring to the way it worked in the middle ages.
Earlier quoted context omitted.
Perhaps, but it will be closer to banning bank lending (as it is fundamentally different from lending between individuals). "Fractional reserve" is just a convenient scapegoat, as banks, once the rules and numbers are reviewed, do not lend from reserves. Any time they approve a loan, new money is put into circulation.
Which means that banks, get to loan money they don't have in the fractional reserve bank system. So banks are levered up like you wouldn't believe, which is a huge weakness of the financial system. And what happens to all the profits from money printing ? Why, that goes to the banks, of course. This proposal seems to simply be to only allow the central bank to lever up, and force Swiss banks to become old-US-style "i…
There are lots of regulation we should change about how banks work, but this proposal isn't one of them.
I have to admit to not understanding this, though I think I know somewhat well about money. Isn't this "sovereign money" the way it is in other countries, where banks either have money deposited by some customers and/or borrowings from a central (government controlled) bank or reserve that controls the total amount of the currency/money? If banks create money on their own for lending, wouldn't that cause an uncontrol…
(please don't hesitate to correct me if I'm wrong) Say there are 3 customers at a single bank. Customer 1 = Investor, has 100 cash and deposits it into a bank account Customer 2 = Borrower, borrows 100 from the bank Customer 3 = Restaurant, provides a service for Borrower. Borrower pays a 100, and Restaurant deposits it to it's bank account. This is how the "sovereign money" travels: Investor -> Borrower -> Restauran…
That is totally wrong. That solution has existed for 100s of years and you can have 100% reserve accounts now if you like.
The reason its not used now is the same it was not used in 1800 Amsterdam. People want interest.
We don't need a 'solution' its a perfectly fine system IF you actually allow banks to be real companies and not part of the government protected services. The problem is the government saving banks.
Note, I have nothing against monetary policy during a crisis, but that should focus on the avg. bank, not at saving bad actors.
As somebody from Switzerland I think this is insane. I will vote against it. Honestly, most people who want this dont have a clue about monetary policy.
Earlier quoted context omitted.
(please don't hesitate to correct me if I'm wrong) Say there are 3 customers at a single bank. Customer 1 = Investor, has 100 cash and deposits it into a bank account Customer 2 = Borrower, borrows 100 from the bank Customer 3 = Restaurant, provides a service for Borrower. Borrower pays a 100, and Restaurant deposits it to it's bank account. This is how the "sovereign money" travels: Investor -> Borrower -> Restauran…
You left out the reserve requirements, wiki has a nice chart on how reserves affect expansion. https://en.wikipedia.org/wiki/File:Fractional-reserve_bankin... I've heard people say that the fractional reserve system causes the boom and bust cycle, because when banks lend money, the create the principal not the interest which leads to a shortfall at some point. Not sure if this is right tho.
That is only with Austrian Economics and even there its not the majority position. Its actually only the position of a subgroup called 'Rothbardians'.
In a real market for banks the reserve ratio was determined by relative demand to hold money. Meaning if demand to hold money was high (low monetary velocity) banks could reduce their reserves. The elegance is that the profit motive makes banks automatically conduct policy like that and it leads to overall stability (at least most of the time).
The western world has spent a lot of time destroying these mechanism and replacing them with layers of regulation that are impossible to understand and get influenced by what the banks want.
