Sovereign money system

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A sovereign money system is a theoretical model of a currency system that comprehensively provides money as the legal tender in a currency area .

In addition to cash ( coins and banknotes ), sovereign money would also include book money , which in a sovereign money system would also be put into circulation by the central bank. In contrast to this, the book money on accounts of bank customers, the so-called deposit money, is not a full-fledged and legal tender, but only an entitlement to such.

Money creation of any kind would be reserved in a pure money order of the corresponding central bank, especially in the form of money accounts for general payment transactions. Book money creation by credit institutions and commercial banks would be excluded. For the step-by-step introduction of cashless sovereign money, approaches were presented that provide for the continued existence of bank money in parallel. Several central banks are considering the introduction of digital central bank money ( Central Bank Digital Currency CBDC ) initially as a means of payment for commercial banks and non-bank financial institutions (NBFI such as insurance companies) and possibly later for bank customers in general ( Retail CBDC ). To this end, a group of central banks coordinated by the Bank for International Settlements has the advantages and disadvantages of CBDC examined. According to the definition, CBDC would also be sovereign money alongside cash.


US economists such as Irving Fisher analyzed the global economic crisis from 1929 onwards. The excessive deposit money creation by commercial banks during the preceding economic boom was recognized as the main trigger. Fisher then published his ideas about so-called 100% money . According to this approach, lending by commercial banks should only be allowed with deposited central bank money. Nobel laureate in economics, Milton Friedman, was also convinced of the idea that the state should prohibit commercial banks from simply putting new money into circulation as they lend. A financial institution can only issue a new loan if it has the same amount of cash reserves. The German economist and member of the board of directors of the Deutsche Bundesbank, Rolf Gocht , proposed a new monetary system in 1975 that would prevent money from being created by commercial banks. In contrast to Fisher and Friedman, Gocht's proposals were a system in which all money should only be spent by the central bank. This system was further developed by Professor Joseph Huber at the chair for economic and environmental sociology at the Martin Luther University in Halle and subsequently referred to as the full money system .

Richard A. Werner , Professor of International Banking at the University of Southampton in England, developed related proposals for a less vulnerable monetary system. He also noted that commercial bank lending for speculative purposes rose sharply before a crisis broke out. According to his investigations, the use of funds reveals whether the granting of credit is excessive and speculative or not. If the loans mainly served unproductive purposes, there is an undesirable development. Werner therefore wants the responsible central bank to decide how large the total loan volume may be and to whom the newly created funds should be left.

All of the proposals mentioned have in common that the commercial banks' ability to create money should either be restricted or completely abolished in favor of the central bank.


After the responsible central bank had issued sovereign money to the extent necessary for the economy of the currency area, commercial banks would finance economic activities with circulating money, for example by granting loans at their own discretion, by placing securities or by brokering equity investments. As before, the banks would also provide services such as changing money, processing payment transactions and managing assets. However, sovereign money would circulate on checking accounts outside of bank balance sheets. It did not arise and existed not only as a customer claim to the bank or as a bank liability to the customer. The bank in question would have to hold central bank money (reserve money, sovereign money) as security to the extent of the customer claim. Payment transactions would no longer consist only in the settlement of bank liabilities, but in an actual flow of liquid assets . The banks would become mere intermediaries (credit brokers).

Deposits with banks

Secured interest-free customer deposits on current accounts at commercial banks would be managed by them in trust. In the event of a bank failure, these customer funds would not be endangered because there would have to be a corresponding balance at the central bank. This would not require the central bank itself to maintain individual customer accounts. It could delegate this task to the commercial banks. Alternatively, customers could, as before, leave money to the commercial bank in a savings account at an interest rate defined by it. The bank could use these funds for loans. In this case, however, the counterparty risk would remain with the relevant commercial bank as before.


Commercial banks could only grant loans with money that they would have borrowed from the central bank, left in interest-bearing customer accounts, or that would have accrued to them through admission to the capital market. Each bank would decide independently to whom it would lend under what conditions. The bank bears the sole risk for this. If a bank got into trouble due to unsuitable lending, processing would be easier. The checking accounts outside the bank balance sheet and the maintenance of payment transactions made it possible to cope with the failure of an institution.

Control of the money supply

In this system, the central bank would have control over the entire amount of money made available. Countercyclical management would be possible to compensate for economic fluctuations. In order for economic growth to remain possible, additional money would be fed into the economy as required, either through donation to state organs, distribution to all residents (e.g. as " helicopter money " or basic income) or through additional interest-bearing loans from the central bank to the commercial banks.

System change

The changeover from a minimum reserve system to a sovereign money system could be done by replacing the existing book money with sovereign money, which the central bank owes. The previous liabilities of the commercial banks to their customers would be converted into a liability of the central bank to the bank customers and would no longer appear on the balance sheet of the commercial banks - for example, they would be kept by the commercial banks in trust accounts on behalf of the central bank. When repaying outstanding bank loans after the system change, the repayments of their customers would be forwarded by the banks to the central bank, which would initially lead to a reduction in the money supply. This could reduce a previously inflated money supply or, alternatively, the central bank could create new money. This exchange money creation could be used to reduce the state's debt.

Difference to the minimum reserve and full reserve system

A fully implemented sovereign money system would differ from reserve systems in that, in real and financial terms, only sovereign money circulates instead of virtual bank money, which in the minimum reserve system is only backed by a small reserve of central bank money . The distinction between giro money (bank money) and reserves (central bank money) would thus be omitted. There would only be sovereign money from the central bank, which would in principle circulate in the same way among all economic operators, although using different media (cash, bank account, central bank account, electronic money ).

Rejected sovereign money initiative Switzerland

In Switzerland , the association wanted Monetary modernization by means of rejected full money initiative a constitutional amendment to achieve that only the Swiss National Bank to supply the company with cash and book money would be responsible.


After the Icelandic banking system almost collapsed in 2012 as a result of the Icelandic financial crisis in 2008-2011 , a parliamentary motion with petitions (nine supportive, three critical) demanded an examination of the sovereign money idea. At the end of March 2015, the Progress Party MP and Chair of the Economic and Trade Committee Frosti Sigurjónsson presented a report on the possible introduction of sovereign money, prepared on behalf of the Prime Minister, entitled Monetary reform: A better monetary system for Iceland .


A comprehensive discussion only took place in the German-speaking area through the corresponding Swiss popular initiative. However, the mostly critical comments refer to the concrete form of the proposed constitutional text. The following list is a summary of some generally valid objections, which can be read on the sovereign money initiative :

  • The introduction of a sovereign money system would not make a national financial system comprehensively more stable. In a new financial system crisis, banks could still go under or would still have to be bailed out by governments or central banks. However, bank customers would now have the option of holding payment accounts secured by the central bank.
  • There would be a power shift in the monetary system from commercial banks to central banks. Critics doubt that a central bank could better determine the amount of money required for an economy as a whole than commercial banks with their proximity to customers. In addition, there is a risk of increased political influence on central bank decisions.
  • A core task of the state - the creation of solid money - would no longer largely be ceded to a privileged group of profit-oriented, private commercial banks. In no other field of the economy are sovereign tasks so mixed up with private interests.
  • There are numerous possibilities of circumvention such as switching to other currencies or the shadow banking system .
  • Commercial banks would no longer have any sources of income because withdrawing deposits from current accounts would restrict the previous interest differential business and maturity transformations .
  • Switching to a sovereign money system would be associated with risks, because no practical experience has yet been available. It is uncertain what would happen to the exchange rates of the respective currency.

In her book Die Produktion des Geldes (2018), British economist Ann Pettifor criticizes the demand by supporters of the sovereign to transfer the right to create credit from banks to the central bank: Power “to a small body of people at the top transferring it to a central bank would, in my opinion, be a step on the way to an autocracy ”.

See also



Web links

Individual evidence

  1. Michael McLeay, Amar Radia, Ryland Thomas: Money creation in the modern economy. In: Bank of England Quarterly Bulletin. London 2014 Q1, pp. 14-27. Deutsche Bundesbank (Ed.): Money and monetary policy. Frankfurt, as of spring 2015, pp. 57–83.
  2. John Barrdear, Michael Kumhof: The macroeconomics of central bank issued digital currencies. Bank of England Staff Working Paper, No. 605, July 2016, London. - Bank for International Settlements: CPMI report on digital currencies. Basel, November 23, 2015.
  3. Jürgen Stark : The future of money. In: NZZ , February 8, 2020, p. 12
  4. ^ Thomas Fuster: Vollgeldinitiative: A tricky role model. In: NZZ. June 28, 2017. Retrieved June 28, 2017.
  5. Olaf Storbeck: IMF researchers are playing through radical banking reform. In: Handelsblatt online. August 16, 2012.
  6. Jaromir Benes, Michael Kumhof: The Chicago Plan Revisited. IMF Working Paper, WP 12/202 , International Monetary Fund, Washington 2012 (English).
  7. ^ Rolf Gocht: Critical considerations on the national and international monetary order. 2nd Edition. Duncker & Humblot, Berlin 2011, ISBN 978-3-428-13651-3 .
  8. ^ Joseph Huber, James Robertson: Money creation in public hands. Way to a fair monetary order in the information age. Gauke, Kiel 2008, ISBN 978-3-87998-454-1 (revised German edition of Creating New Money. A monetary reform for the information age).
  9. The end of the monetary mirage. Interview with Joseph Huber. on: n-tv , June 14, 2010, accessed March 4, 2017.
  10. ^ Richard A. Werner: New economic policy. Vahlen Verlag, Munich 2007, ISBN 978-3-8006-3247-3 .
  11. ^ A b Association Monetary Modernization (ed.): The sovereign money reform - how national debts can be reduced and financial crises prevented. 3. Edition. Edition Zeit, 2013, ISBN 978-3-9523955-0-9 , pp. 27–53.
  12. ^ Helge Peukert: New monetary system for Europe. In: Deutschlandradio Kultur. November 21, 2011.
  13. a b Full Money initiative Switzerland: Unsolicited text , club MoMo Monetary modernization , on Web of the initiators (
  14. Michael Malquarti: Bares for citizens. In: Neue Zürcher Zeitung. February 16, 2015.
  15. Michael Malquarti: With money rations against the crisis. (Distribution of new central bank money to the population). In: Handelszeitung. March 3, 2016, p. 23.
  16. ^ Paul Schreyer: A new monetary order. ( Memento from February 27, 2016 in the web archive ) In: Telepolis. February 1, 2012.
  17. Joseph Huber: Sovereign Money and 100% Reserve (Chicago Plan). accessed on February 23, 2016.
  18. ^ Federal People's Initiative 'For crisis-proof money: Money creation by the National Bank alone! (Sovereign Money Initiative) '. on:
  19. 3-minute info - Pro-arguments of the initiators, Short information on the full money initiative on Web of the initiators (
  20. Frosti Sigurjónsson : Monetary reform: A better monetary system for Iceland . with foreword by Adair Turner , Edition 1.0, March 20th 2015, Reykjavik - Iceland (PDF on the Icelandic government's web,, English)
  21. ^ Icelandic Parliament investigating Full Reserve Banking. Positive Money (, December 5, 2012, English.
  22. Fundamental reform of the monetary system must be considered, says head of Iceland Parliament's Committee for Economic Affairs , News and Articles, Iceland Prime Minister's Office, March 31, 2015, English.
  23. Iceland looks at ending boom and bust with radical money plan - Icelandic government suggests removing the power of commercial banks to create money and handing it to the central bank In: The Telegraph . March 31, 2015, English.
  24. Simon Schmid: Iceland toying with the money revolution - The Viking Island has already experienced everything: hyperinflation, financial crashes, bank failures. Now, with the sovereign money system, a radical reform is up for debate that also has supporters in Switzerland. ( Newsnet / TA-Media : Basler Zeitung (BAZ) / Der Bund / Tages-Anzeiger (TA)), April 10, 2015 - Article on BAZ , Der Bund , TA
  25. Thomas Fuster and Peter A. Fischer: Would our financial system be safer with sovereign money? A dispute. In: Neue Zürcher Zeitung. May 26, 2018. Retrieved June 9, 2018.
  26. a b Urs Birchler and Jean-Charles Rochet: Sovereign Money Guide. Department of Banking and Finance, University of Zurich, November 1, 2017, accessed on June 9, 2018
  27. Ralph Pöhner: Financial Times applauds the full money initiative. Balance sheet, June 6, 2018, accessed June 10, 2018
  28. Peter A. Fischer: Why the SNB does not believe in sovereign money and national bank accounts for private individuals. NZZ, January 17, 2018, accessed on June 9, 2018