Switzerland holds referendum to end fractional reserve banking

[Recursion]

https://blogs.cfainstitute.org/investor/2016/01/27/is-this-the-end-of-fractional-reserve-banking/

I can pretty much guarantee you that the biggest story not being covered in the traditional business press right now is that Switzerland will hold a referendum to consider ending fractional reserve banking (!).

...

How did this state of affairs even come about? The answer, it turns out, is shrouded in history. Specifically, it is hidden in the fog of the economics profession of the Great Depression. On 16 March 1933, a group of economists hatched an idea known as the “Chicago Plan,” Chief among these economists was one of the grandfathers of the profession, Irving Fisher. Their obsession was to identify the causes of the Great Depression and of the business cycle. Among the culprits they identified was fractional reserve banking.

In fractional reserve banking, banks keep only a small portion of the deposits they receive in their vaults and are otherwise free to lend out the rest. A typical ratio is 10:1 loans to reserves. What that means is that commercial banks share responsibility for money creation in an economy with central banks and that the credit and monetary functions of banking are intimately tied together.

Yet commercial banks have a varying and volatile appetite for money creation. The economists of the Chicago Plan thought that the business cycle was directly related to these appetites, with recessions (and the Great Depression) being among the consequences. Their solution? A 1:1 ratio of loans to reserves, with every $1 in loans backed by $1 in deposits. Despite generating a lot of interest at the time, the plan fell into obscurity. It resurfaced briefly several years later, following the US recession of 1937–1938, after which it again disappeared from history.

Some things really, really should not be decided by referendum.

[alwaysinasnit]

1. I am unsure of the meaning of your comment. Could you please clarify or expand on it. Thx.

[Recursion]

4. This is a question that's too complex for normal people to decide on

It would be like putting up for a referendum "should lisinopril be prescribed with or without hydrochlorothiazide?" The public has nothing to offer that question.

[roamer65]

2. That will cause a severe recession in Switzerland.

The resulting constriction of the money supply will guarantee it.

[OnDoutside]

3. Wow, that's a pretty big deal alright, if they vote it through. That's the Swiss for ya !

[brush]

5. And it will spread.