FUTURE OF FINANCE FRIDAY

The Swiss are voting on the radical concept of “sovereign money”—the anti-bitcoin

Debates about fractional-reserve banking are suddenly all the rage.

One response to the 2008 financial crisis—popular among the bitcoin camp, in particular—has been to decentralize authority. That is, take power away from the elites and spread it among regular people who suffered the most and had the least recourse when the economy crashed. And it isn’t just crypto enthusiasts—you can make the case that the small-government, low-taxes Tea Party, which surfaced in the US in 2009, has similar DNA.

Another response to crisis has been to give even more power and responsibility to a centralized authority. Switzerland’s “sovereign money” referendum fits into this category. On Sunday (June 10), Swiss voters will decide whether to ditch the fractional-reserve banking system (pdf), in which banks create money as a byproduct of extending credit, lending out far more than they hold in deposits. The radical reform, called Vollgeld, would give the Swiss National Bank a monopoly over this power, and require commercial banks to lend only what they have on hand. (Read more about it here.)

If the referendum succeeds, it would cause convulsions for the country’s enormous banking sector and spark another Brexit- or Trump-like market panic if it happens. That said, some economic luminaries (paywall) think such a proposal would indeed make the panic-prone banking system more robust.

Switzerland’s sovereign money initiative would concentrate even more power into the Swiss National Bank—which, by the way, abhors the idea. The bank says money creation would be centralized at the institution, and the corresponding profits would end up there as well. This politicized, state-controlled credit system would hold sway over who should and shouldn’t receive loans across the economy.

The referendum is generally seen as a populist response to the previous financial crisis. Switzerland, notably, has had far fewer crises than most countries, according to IMF data. It has a low unemployment rate and the Swiss franc is a haven currency that is, if anything, too strong. There are some imbalances. The country’s housing market is showing signs of overheating and, in an effort to keep the currency from appreciating too much, the central bank’s balance sheet has grown to epic proportions.

It feels less revolutionary—maybe because I write so many bitcoin stories—but it’s arguable that centralization has been a bigger force following the financial crash than a push towards the stateless, decentralized power promoted by the crypto crowd. There are fewer banks than before, and they’re bigger and more profitable. Ordinary fiat bank deposits are growing. The US and Europe enacted sweeping regulatory overhauls that gave regulators more heft. The Swiss initiative, in fact, would give officials power that they don’t even want.

Alas, the referendum is seen as unlikely to succeed (sound familiar?). The most likely outcome is more of the same—until the next crisis comes along.


The future of finance on Quartz

The number of bank accounts in Nigeria and Mexico has fallen. In low- and middle-income countries, less than half of all people have an active account, according to the World Bank. Headline stats on the growth of financial inclusion often mask a large rise in inactive accounts.

A London asset manager has started a doomsday fund. After years of heavy monetary stimulus, Algebris Investments thinks global economies have become vulnerable to a shock. Geopolitical flareups and debt defaults are among the things that could go wrong, and the money manager’s tail-risk fund stands to profit when they do.

China suddenly has nice things to say about blockchain. China Central Television, the government-controlled broadcaster, used to blast crypto projects. Now, it promotes blockchain with Chinese characteristics.

Germany’s biggest bank is worth the same as a medium-sized regional US lender. Deutsche Bank’s market capitalization falls between Chicago-based Northern Trust and Fifth Third, which has its headquarters in Cincinnati. Yet its assets are 12 times bigger.

The most valuable banknote in circulation is worth about as much as a bitcoin. That bill is Brunei’s B$10,000 note, which is worth about $7,500, roughly the same as bitcoin. Brunei’s ruler is among the few remaining absolute monarchs and one of the longest reigning.


The future of finance elsewhere

Ant Financial raised a whopping $14 billion. The Alibaba affiliate exceeded the $10 billion targeted earlier, achieving the largest private fundraising round ever. International investors including The Carlyle Group bought the dollar-denominated tranche. Ant says it’s investing in blockchain, artificial intelligence, security, and the Internet of Things.

Adyen could be valued at more than $8 billion when it goes public. The Dutch payment firm’s technology is used by the likes of Netflix and Facebook. It generated revenue of €218 million ($257 million) last year, up 38%. Crypto is supposedly the future of money, but regular old fiat payment processors still handle all the transactions.

Fortune says blockchain consortium R3 is floundering. R3 disputed claims that it missed revenue targets and is running low on money. It has been 10 years since Satoshi Nakamoto’s white paper was published; people are anxious to see viable projects that provide more than an opportunity to gamble.

In crypto’s Wild West, the CFTC is Wyatt Earp. Commissioner Rostin Behnam said crypto will proliferate in every part of the world: “Perhaps we are witnessing a modern miracle.” Is the US commodities regulator crypto’s biggest cheerleader?

Coinbase says it’s on track to operate a regulated broker-dealer. If approved, the crypto exchange would be able to offer blockchain-based securities under the oversight of US watchdogs. This contrasts with the regulatory arbitrage waged by the likes of Binance in Malta.


Previously, in Future of Finance Friday

May 25: A leading monetary historian says he’s bombarded with “phony” crypto pitches

May 18: Despite Trump’s populist threats, the White House is Wall Street’s greatest ally

May 11: Maybe companies are just doing blockchain wrong

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