Swiss Vollgeld initiative could end Fractional Reserve Banking

Safety comfort

It was an odd Xmas present to the global banking industry. On 29 December headlines were announcing that:

“Switzerland to vote on banning banks from creating money”

The Swiss referendum would strip commercial banks of the ability to create money using Fractional Reserve Banking. Banks would have to back loans 100% with reserves. As an article in Stratfor pointed out, this has implications globally and

“could shred core business assumptions that have underpinned the banking model over the past three centuries.”


The idea of what the Swiss call Vollgeld (translation is “full money”) was first outlined in a 2012 paper from the International Monetary FundIceland is also considering this, but Iceland is tiny compared to Switzerland. This research note look at Iceland as one of the alternative Fintech Capitals, which is # 84 on the Global Financial Centers (GFC) index and tiny in GDP terms. So any move they make can be dismissed as irrelevant by the banking industry. However if Switzerland makes the move it cannot be dismissed as a blip. Zurich alone ranks # 7 in GFC and Geneva ranks # 13. Switzerland is a global leader in Wealth Management.

Vollgeld would be a totally radical move that would hurt traditional banking in Switzerland in the short term, but it could vault Switzerland into a leadership position longer term. If Switzerland does it, other centers will have to follow. This is a case of disrupt before you are disrupted. Together with the move by Xapo from Silicon Valley to Switzerland and the growing crypto expertise in Zug, this could put Switzerland on the Fintech map.
How the people will vote is obviously unknown. Most bankers will warn of bad results, but one can see a populist case forming that citizens are fed up with bailing out banks and that Vollgeld eliminates systemic risk.

Some forward-thinking bankers and Fintech entrepreneurs may also make a case within the Banking industry along these lines:

  • The transition from creators of capital to conduits of capital is already happening in the lending and equity crowdfunding marketplaces. So why fight the inevitable? Get ahead of the trend aka disrupt before you get disrupted.
  • The  line of business least impacted by Vollgeld will be Wealth Management, where Switzerland excels. Investors will pay directly for having assets protected. This maybe called negative interest rates today. It might simply be called direct fee for service – pay to have your assets secure and protected.
  • If banks are paid to store assets, banks can also offer to lend money based on these assets as collateral. This is different from fractional reserve banking because the risk is the individual customer’s risk. There is no systemic risk.

This seems like an odd move for Switzerland given how important Financial Services is to the Swiss economy (over 10% of GDP and 5% of workforce).

Maybe they are seeing the Fintech writing on the wall that banking will return to a utility model, a subject I covered in an earlier post.

The implications globally – both for incumbents and startups – will be profound.

Will a referendum pass and when?

In Switzerland’s direct democracy, a referendum can be held if a motion gains 100,000 signatures within 18 months of launching.

What will be the implications if it passes?

This will move Banking to a utility direct revenue model. Banks will charge directly to store (custody) your assets whether they be cash or securities or gold or bitcoin or anything else. There will be zero systemic risk and no need for taxpayer bailouts or government insurance schemes.

Bankers everywhere – not just in Switzerland – will have to track Vollgeld and plan for that as one possible future scenario.

Daily Fintech Advisers provide strategic consulting to organizations with business and investment interests in Fintech.