The sovereign money initiative will be submitted to the Swiss people in 2018. This paper reviews the arguments behind the initiative and discusses its potential impact. I argue that several arguments are inconsistent with empirical evidence or with economic logic. In particular, controlling sight deposits neither stabilizes credit nor avoids financial crises. Also, assuming that deposits at the central bank are not a liability has implications for fiscal and monetary policy, and Benes and Kumhof (The Chicago Plan Revisited, 2012) do not provide support for the reform as they do not analyze the proposed Swiss monetary reform and their closed-economy model does not fit the Swiss economy. Then, using a simple model with monopolistically competitive banks, the paper assesses quantitatively the impact of removing sight deposits from commercial banks' balance sheets. Even though there is a gain for the state, the overall impact is negative, especially because depositors would face a negative return. Moreover, the initiative goes much beyond what would be the equivalent of full reserve requirement and would impose severe constraints on monetary policy; it would weaken financial stability rather than reinforce it; and it would threaten the trust in the Swiss monetary system. Finally, there is high uncertainty both on the details of the reform and on its impact. I argue that several arguments are inconsistent with empirical evidence or with economic logic. In particular, controlling sight deposits neither stabilizes credit nor avoids financial crises. Also, assuming that deposits at the central bank are not a liability has implications for fiscal and monetary policy, and Benes and Kumhof (The Chicago Plan Revisited, 2012 ) do not provide support for the reform as they do not analyze the proposed Swiss monetary reform and their closed-economy model does not fit the Swiss economy. 6 At this stage, it is interesting to notice that the original sovereign money proposal by HR preceded the global financial crisis, so that avoiding crises was not its main motivation. Even though some of the arguments are not fully explicit, there are several hidden assumptions that run counter to our current knowledge in macroeconomics. In particular, a major argument behind the sovereign money proposal is that controlling money allows the stabilization of credit. 7 This in turn will help stabilize the business cycle. If this is left to commercial banks, HR write: “They expand credit creation in upswings, and reduce it in downswings. Finally, the “ The arguments behind the initiative ” section discusses why bank credit is unlikely to be the source of money creation at the macroeconomic level and relates this view to the “mystique of money.” Independently of its motivation, the next question is to assess the potential impact of the reform for the Swiss economy. This is done in the “ The impact of sovereign money in Switzerland: stage 1 ” and “ The impact of sovereign money in Switzerland: stage 2 ” sections. The reform is planned to be implemented in two stages. In the first stage, sight deposits, that are part of M1, disappear from bank liabilities and are deposited at the central bank. The “ The impact of sovereign money in Switzerland: stage 1 ” section examines quantitatively the impact of the reform’s first stage on the state, on banks, and on depositors, using a simple model of monopolistic competition in the banking sector. In the current situation of the Swiss economy, the aggregate impact of the first stage would be negligible because of very low, even negative, interest rates and of a massive level of banks’ reserves at the central bank: in 2017, the proportion of banks’ reserves to deposits in M1 is larger than 90%. To have an assessment in a period of positive interest rates, I consider data for the 1993–2006 period. 10 One can distinguish between two perspectives. On the one hand, banks can create deposits when granting loans. This is well explained in textbooks when explaining the money multiplier (even if the money multiplier examples are unrealistic). On the other hand, banks serve as intermediaries between deposits and loans. As explained for example by Tobin ( 1963 ), these two perspectives are totally consistent. In equilibrium, the amount of deposits created by banks has to be equal to the amount desired by depositors. And the central bank can influence this equilibrium. Currently, banks hold deposits at the central bank because they trust the central bank and because they know that they can withdraw their funds immediately. With sovereign money, deposits at the central bank are not determined by commercial banks and may be less fickle. But reductions in deposits may still occur and may be caused by a decline in trust in the system. If the central bank gets rid of its assets, it will clearly lose credibility and trust in the system may indeed decline. Putting the emphasis on a frontloaded distribution of central bank profits may help in “selling” the initiative to the voters but is not key to a monetary reform. Moreover, it would clearly put political pressure on the SNB. Implications for monetary policy Monetary policy would clearly be hampered by the sovereign money initiative. In the ideal world of a smoothly growing economy, the SNB could gradually increase its money supply through transfers (with all the problems this entails). But in the real world, the economy is bumpy and the SNB needs to react quickly to the changing economic environment. This appears unrealistic and extremely difficult to implement politically. An alternative could be to issue central bank bills to reduce money supply. But how safe would central bank debt be perceived if its assets do not match existing liabilities? Investors may require a high risk premium to hold these bills, which would make monetary policy very costly. Moreover, once there is central bank debt, could it be reduced to increase again money supply?