The Swiss initiative to give the Swiss National Bank (SNB) the authority to be the ‘sole’ money creator has been rejected with 75% on Sunday.
Although the Swiss vote did not target the cryptocurrencies, there are speculations that the sharp rejection of the Sovereign Money initiative may have explained a part of the debasement across the cryptomarkets during the weekend, as there is one important parallel between the sovereign money initiative and the creation of central bank cryptocurrencies: the reserve ratio.
In fact, the early examination of the possibility for using the blockchain technology for national cryptocurrencies showed that the latter would probably lead to a 100% reserve system, where every unit of cryptocurrency would be backed by the central bank reserves.
The rationale behind the 100% reserve requirement is that, assuming that the cryptocurrency holdings are remunerated with the same rate than the central bank reserves, users would be tempted to hold risk-free, interest-rate-bearing central bank coins instead of deposits with the commercial banks.
Consequently, in a monetary system including a national cryptocurrency, the central bank reserves would represent the entire monetary volume available in the market. This would make the central bank the ‘sole’ creator of sovereign money, as opposition to the actual system where commercial banks create money by lending most of the available volume to other institutions and users, while keeping only the minimum reserve ratio on their balance sheets.
So, the fact that Switzerland, which has a long banking history and has been home to many innovations in cryptocurrencies, is not ready to change its monetary system in favour of a configuration that could eventually be compatible with the use of official cryptocurrencies, may have deteriorated the sentiment across the market.
Bitcoin traded below 6’800 versus the US dollar, while Ethereum tested the $500-support.
Don’t Be Confused: Switzerland Hasn’t Voted Against Cryptocurrencies
Although the markets settled parallels between the Swiss initiative and the cryptocurrencies, Swiss citizens have not rejected the idea of using cryptocurrencies. They rejected the idea of a system, where 100% of the monetary volume would be backed by the central bank reserves, because it would have put too much pressure on the central bank, compromise the independency between the monetary and fiscal policies and lead the country to a period of economic uncertainty by adopting a model which is not in line with the rest of the world.
We also remind that there are important differences in terms of functionalities between hypothetical national cryptocurrencies and the existing cryptocurrencies.
It is important to highlight that trading of non-sovereign cryptocurrencies do not interfere with the monetary policy mechanism. At least, not more than the traditional asset classes. In this sense, the cryptocurrencies should be considered as traditional financial instruments such as stocks, and not be confounded with the sovereign money.
Hence, the result of the Swiss vote should not be perceived as a direct negative reaction to the use of cryptocurrencies.