Swiss Banks: 34 billion Swiss francs profit from creating money out of thin air
Switzerland - Between 2007 and 2015 Swiss banks have profited by 34.8 billion CHF from being able to create money. If the Swiss National Bank had created this money then these billions would have become public funds for the benefit of all Swiss citizens. This is the conclusion of a new study from the New Economics Foundation and the Copenhagen Business School
Up until now the people bringing the Swiss Sovereign Money Initiative (the “Vollgeld-Initiative”) have held back on putting a figure on the amount of profits Swiss banks have made from being able to create money. The figures in the recently published report give the size of the profits received by banks from money creation for Switzerland as well as some other countries. On average, Swiss banks received 2.8 billion CHF between 2007 and 2015 due to the fact they are allowed to create electronic money. The Swiss National Bank creates only 10% of Swiss money in circulation in the form of coins and banknotes.
No costs but profit from interest
Where do these banks’ profits from money creation come from? Essentially it costs the banks almost nothing (or very little) to create money, whereas they can demand interest when they lend out this money. For Dr. Reinhold Harringer, one of the people bringing the Vollgeld-Initiative, this is indefensible: “This privilege that the banks have, to be able to create money, comes at an enormous public cost which is borne by taxpayers: the Swiss National Bank receives correspondingly less income from interest and can therefore distribute fewer funds to the federal government and the cantons”. Due to this the banks today have an unjustified competitive advantage over insurance companies, pension funds and all other firms and private individuals. Except for banks, all firms and individuals must have funds available to them before they can invest or spend. If they need money they must first earn it or they must borrow it at interest. Not so for banks – they can just create the money they need.
No profits from money creation due to negative interest rates
The report explains that since the current negative interest rate regime started two years ago in Switzerland, the banks haven’t been making profits from money creation. It would therefore be a good moment to switch over to a sovereign money system, as currently the banks would suffer no financial losses from the abolishment of their money creation privilege.
Profits from money creation would go to the public purse on implementation of the Vollgeld-Initiative
With the Vollgeld-Initiative (on which there’ll be a binding national referendum probably within the next year) the profits from creating money would go 100% to the Swiss National Bank. This means that all the interest-profit from money creation would flow to the public purse. After the implementation of the Vollgeld-Initiative the Swiss National Bank would also have the possibility of introducing debt-free money into circulation, by handing out newly created money to the state or directly to the citizens as a citizens’ dividend. Taxpayers would therefore benefit even more. Dr. Reinhold Harringer has commented: “Switzerland is losing out on billions, because banks create money. On the other hand we’re looking everywhere to make savings. With sovereign money the public would profit from the creation of money, not the banks.”
To the report
The report “Making money from making money – Seigniorage in the modern economy” has been published by the New Economics Foundation and the CBS Copenhagen Business School. The authors have used publically available data to calculate the profits from money creation (seigniorage) made by the banks in four countries: England, Denmark, Iceland and Switzerland.
Good to know - The Swiss Sovereign Money Initiative or "Vollgeld-Initiative" The aim of the Vollgeld-Initiative is that electronic money (the money in our current or checking accounts, sometimes called book-money) would become legal tender like coins or banknotes. In December 2015 over 110,000 valid signatures were handed in supporting the Vollgeld-Initiative, enough to force a binding national referendum under Switzerland’s system of direct democracy. This is expected to take place around the end of 2017. The Vollgeld-Initiative was started by the NGO Monetäre Modernisierung (MoMo). The advisory board includes amongst others Philippe Mastronardi, emeritus Professor for Public Law, Sergio Rossi, Professor of Macroeconomics and Monetary Economics and Peter Ulrich, emeritus Professor for Business Ethics.