100 Brazilian real

Currency

Self determination

A currency is the money that is in use within a nation. US dollars, Chinese renminbi, Korean won and Brazilian real are all currency. A national currency promotes national self-determination. It allows a nation to pursue its own economic policies, although the options are limited by market forces.

Local or regional currencies can supplement national currencies, most notably when communities or regions are closely integrated and want to achieve some economic independence. A supranational currency like the euro reduces national economic independence. The issue of self-determination makes currency a political subject.

Reserve currency

Reserve currencies facilitate international trade. In the past decades the US dollar was the most used reserve currency. This arrangement allowed the United States to enjoy a higher living standard and military paid for by foreign nations.

On the other hand foreign nations had a competitive advantage. This harmed US businesses. By buying US Dollars foreign competitors of the United States were able to suppress the exchange rate of their currency and sell their products cheaper.

Furthermore, the reserve status of the US Dollar made the FED responsible for the international banking system. The FED had to rescue foreign banks during the financial crisis of 2008 so that the US taxpayer backed up foreign banks.

International Currency Unit

An International Currency Unit can facilitate trade. It can be introduced alongside national currencies. The International Currency Unit can be a weighed average of national currencies. It may require an international central bank to guarantee stability in the international banking system. As long as central banks make political decisions, an international central bank would be a troublesome construct.

Only when central banks do not set interest rates and do not print currency, it might be feasible to introduce an international central bank. This might be possible when the International Currency Unit is a Natural Money currency. The underlying currencies may need to be Natural Money currencies too. With Natural Money interest rates are not set by central banks so the role of central banks is reduced.

50 euro
50 euro

The euro

The euro is a unique experiment. The nations of the euro zone are sovereign but have given up their national currencies. This produced political and economic tensions. Countries in Northern Europe feel that they have to pay for the debts of Southern Europe while countries in Southern Europe feel they are faced with austerity dictated by Northern Europe. The available options appear making the eurozone a federation like the United States or reverting to national currencies.

Returning to national currencies doesn’t have to end the euro. National currencies can be introduced alongside the euro. Alternatively, the euro can become a weighted average of the national currencies making up the euro zone. Existing balances in euro will remain in euro. In the latter case the future euro would look like the proposed International Currency Unit. It could be a step towards introducing an international currency and an international central bank.

Cryptocurrencies

Cryptocurrencies are debt-free and do not need a central bank. They promise an alternative payment system independent from governments and banks as well as an alternative way to issue stock. Proponents of private currencies believe that private currencies like cryptocurrencies can supplement or even replace existing currencies issued by governments and central banks.

Currency is important for political self-determination so governments have usurped the prerogative to issue currencies. Private currencies can undermine the power of governments. Cryptocurrencies also facilitate crime, scams and tax evasion, so they their use is likely to become regulated or even banned in the future. Governments may also start to issue cryptocurrencies themselves.

Until now cryptocurrencies have not been stable. Payments are cumbersome and prone to fraud. Regular currencies don’t have these disadvantages. Cryptocurrencies without a holding tax don’t allow for negative interest rates. As negative interest rates may be needed to ensure a stable economy without crises, these currencies may not be suitable as a means of payment.

The assembly of the canton Glarus

Swiss democracy

In the interest of the people

For a society to function, it needs a kind of order only a government can provide. Over time more and more people came to believe that a government should work in the interest of its citizens. That is quite a leap as traditionally governments were a kind of crime syndicate providing a protection racket. Citizens paid taxes to a lord or a king who provided them with security against other other lords, kings and ordinary criminals.

Even today many governments more or less resemble crime syndicates. They are oligarchies working in the interest of those in power. Government officials often take bribes too. Except for Northwest Europe, Switzerland, Canada and New Zealand, governments range from a bit corrupt to very corrupt. Even when the government isn’t corrupt, citizens often feel that it doesn’t work in their interest.

country-corruption-map
corruption per country (flaxen = most clean, crimson = most corrupt)

The above graph from Transparency International gives an indication of the corruption in each country. Poverty is seen as a cause of corruption but corruption is also a cause of poverty. If a country suffers from corruption, money is diverted to unproductive people. Investors will be wary of making investments so interest rates need to be higher to attract capital. This makes fewer investments profitable and the country will be poorer.

Main features

Only the Swiss are satisfied with their political system. Probably that is because of some of the unique features of Swiss democracy. The Swiss combine representative democracy with direct democracy. The government and parliament administrate the country but if citizens feel the need to take matters in their own hand, this is always possible.

Switzerland uses direct democracy in the form of referendums more than any other country in the world. These referendums are binding, which means that the government must respect the outcome. The following types of referendums exist in Switzerland:

  • mandatory referendums on changes in the federal constitution
  • optional referendums on other federal laws that will be held when 50,000 eligible voters demand for it
  • similar rules exist on the state and communal levels, but the constitutions of the states deal with the specifics
  • citizens can propose a change in the constitution via a popular initiative, and the electorate can decide whether to accept the initiative, an alternative proposal from the government or parliament, or to keep things unchanged

Switzerland is a federation of 26 member states called cantons. The member states have a large degree of independence.

The Swiss constitution promotes making decisions at the lowest possible level and delegating power to a higher level if that is deemed beneficial.

The citizens of the Swiss states elect the Council of States (Senate) by majority vote. They can cast as many votes as there are vacant seats. Voters can propose representatives and influence the fractions of different political parties.

The Swiss elect their National Council (Congress) every four years by proportional representation. The people vote for a political party. Optionally they can vote for a specific person on the candidate list of the party.

Executive power has been distributed in Switzerland. The daily affairs of government are performed by the Federal Council consisting of seven members.

It is customary that all major political parties are represented in the Federal Council.

Constitutional changes need a double majority, which means that majority of the electorate as well as a majority of the cantons must support it.

Most Swiss communities use direct democracy to make decisions. In a few small cantons people can vote directly by the show of hands.

Evaluation

Combining representative democracy with direct democracy means that the citizens aren’t burdened with the daily affairs of government but still are in full control as they can vote on any issue when they feel that is needed.

Direct democracy allows for a more fine-grained alignment of government decisions with the wishes of the citizenry as on some issues the majority might be liberal and on some others it might be conservative.

Before laws are introduced, interest groups such as state governments, political parties and non-governmental organisations are consulted, and their concerns are taken into account. As referendums tend to come down to yes or no questions, this is important.

Proportional representation allows for multiple political parties that more closely match the preference of voters. New parties can emerge more easily. It also means that small shifts in voter preferences tend to have little effect on the political landscape.

Swiss voters can influence the make up of the political fractions of multiple political parties, which means that the people who are elected in parliament for a specific party are more likely to be acceptable to voters of other parties as well.

All major political parties work together in the Federal Council because there is little room to forward political agendas as citizens can always call for a referendum.

The use of direct democracy in Switzerland makes it less relevant who is in government so that political discussions tend to focus on issues and content rather than people and rhetoric. The Swiss tend to be well-informed about the issues that are at stake.

Proportional representation as opposed to win or lose elections foster cooperation between political parties as individual political parties mostly don’t have a majority so that they need to work with other parties to achieve their goals.

Proportional representation reduces the need to spend large amounts of money on political campaigns and other manipulations like gerrymandering, voter fraud and vote suppression as the effects of these actions tend to be limited.

Many countries have strict limits to political donations and campaign spending. Switzerland does not have these restrictions. This is not as harmful as it might be without proportional representation and referendums.

Direct democracy undermines the effects of lobbying for a law doesn’t pass if it is not supported by a majority of the voters. And so interest groups need to convince the citizenry rather than politicians in order to achieve their objectives.

In Switzerland the Congress represents the nation as a whole while the Senate represents the states. Hence, a decision needs the consent of a majority of the parliament of the nation as well as a majority of the cantons.

Most countries have a Congress and a Senate but many are unitary states and not federations like Switzerland. In unitary states the role of a Senate varies. For example, it can focus on protecting the constitution against laws that violate it.

Switzerland doesn’t have a Constitutional Court or Senate to protect the Constitution. There is no good safeguard of human rights. The majority can vote for stripping the rights of minorities. Switzerland is bound to the treaties it signed but better safeguards to protect human could be an improvement.

Conclusion

The Swiss are satisfied with their political system. And even though it has a few weak points, there is good reason to believe that other countries benefit from implementing a similar political system in which the citizens have the final say. Yet, different nations might opt for different versions of direct democracy.

Some people think that a better political system is possible. There are many ideas. The Swiss political system has proven to work in practise. It allows citizens to vote on proposals to alter and improve the political system. So even if a better system is possible, the Swiss political system may be the best way to get there.

The Swiss federation can be a model for the European Union and the United States. By delegating responsibilities to the state level it might be possible to reduce bureaucracy in the federation while increasing the legitimacy of the centralised institutions. Swiss democracy might also be a model for a world government if that ever comes to pass.

Featured image: The assembly of the canton Glarus. Democracy International (2014). [copyright info]

See also: http://direct-democracy.geschichte-schweiz.ch