The Financial Stability Board and Switzerland's WiR-Credit Mechanism. Issue 4 (2nd October 2019)

• Record Type: Journal Article
• Authors: Phillips, Emir; Desmoulins-Lebeault, Francois
• Is Part Of: Journal of economic issues. Volume 53:Issue 4(2019)
• Page Start: 1152
• Page End: 1169
• Publication Date: 2019-10-02
• Subjects: gross capital flows -- bank credit -- current account imbalances -- banks refinancing loans -- Spain; E44 -- F41 -- F45 -- G15; Economics -- Periodicals; Economics; Économie politique -- Périodiques; Economie; ECONOMICS; ECONOMIC POLICY; Periodicals; 330.05
• DOI: 10.1080/00213624.2019.1675452
• Languages: English
• ISSNs: 0021-3624

Abstract

Abstract: The incentives banks face, such as the Basel Capital Accords, motivate them to favor lending with collateralized assets, rather than lending to Small-Medium Enterprises (SMEs), with associated profound economic consequences for society. Since the 1970s there has not been any direct oversight of whether or not credit contributes to GDP. We need a macroeconomic policy tool that can discriminate among different categories of credit extended to curb speculation in existing assets (non-GDP) and promote new business investment (GDP). Government money creation and private credit growth are often presumed the only two ways to enhance nominal demand, yet the Swiss Economic Circle (Wirtschaftsring-Genossenschaft or WIR) is a Swiss Bank whose creation of purchasing power for SMEs has counter-cyclically stabilized the Swiss economy for over 80 years. The Financial Stability Board (FSB) should create localized credit-creation architectures utilizing a Swiss-WIR type currency to funnel credit that reflects systemic and macroeconomic risks that individually will never be rational for banks left to themselves.