Loan conditions are more favourable and the terms on sight deposits are better than they would be under a sovereign money system. Since banks have to compete with each other, they are left with only enough of the profits from money creation to enable them to remain in business. In a sovereign money system, money creation would be centralised at the SNB, from where the corresponding profits would be distributed. But total profits would be no higher than under the current system. For the general population then, the whole thing would be, at best, a zero-sum game. Damaging effects of sovereign money The fact that the Swiss sovereign money initiative promises too much is only one issue. Even more serious is that adoption of the initiative would have profound implications for Switzerland on three levels, namely the real economy, monetary policy and economic order. Real economy  The initiative would negatively impact the real economy through lending because banks would no longer be able to draw on sight deposits. Instead, they would have to attract liquidity from other sources. A key such source would be savings deposits. However, since  Page 5/8  savings – like any funds which investors forego for an extended period – are more expensive than sight deposits that can be withdrawn at any time, borrowing becomes more costly in a sovereign money system. The Swiss sovereign money initiative affects us all directly, as borrowers and savers. Of the loans granted in Switzerland, 94% go to households and SMEs; 86% are mortgages.
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.