Since the currencies of many countries, including Switzerland, were tied to the US dollar, this had resulted in high rates of inflation. Not until flexible exchange rates were introduced could central banks manage monetary policy conditions in their own countries and thereby effectively combat inflation. The SNB belonged to a group of pioneering central banks in this respect, managing to greatly reduce inflation within a very few years. And if we return to our loaf of bread, it is still possible to pay for it with Swiss coins and banknotes, although nowadays cashless payment forms – debit and credit cards – are further options. Two invariables of a sound monetary order By taking you on this short journey in time, my idea was to illustrate the following points for you: The monetary order did and does not arise from natural causes; neither is or was it godgiven. It is, rather, a – more or less – useful human invention. Some of the fundamental turning points were the result of an organic learning process. For instance, the centralisation of the right of coinage in the hands of the Confederation was a reaction to futile attempts to overcome the currency confusion through cantonal agreements, and was a response to the novel requirements of an economy that was developing rapidly. At other times, however, it was necessary to react to upheavals in the international arena with determination, and under time pressure. On example of this was the departure from fixed exchange rates at the beginning of the 1970s.
Nowadays, the SNB and the commercial banks together provide the economy with money. Through credit creation, the banks are in a position to create book money, only a small part of which they are required to cover with SNB sight deposits. In everyday life, this book money – for instance deposits in salary accounts – is generally accepted in the same way that cash is accepted. A plain money system would mean that banks had to cover 100% of their book money with SNB sight deposits. The people behind the initiative believe that this would simplify monetary policy because a plain money system would allow the SNB to manage the money supply with utmost precision. Moreover, plain money is thought to increase the stability of the financial system because deposits are secured by SNB sight deposits. In addition, profits from money creation would accrue fully to the SNB and no longer, in part, to the banks. Although the idea of plain money may be interesting in certain respects, I am sceptical as to whether acceptance of the initiative would result in better money. My reticence is born not only of considerable doubts as to the anticipated benefits of plain money, but far more because the introduction of plain money would constitute an enormous experiment for which we lack any experience or comparative figures from the past. Never in monetary history has a country introduced plain money based on central bank money. Assumptions which appear plausible could therefore prove to be incorrect.