The long road to a central bank

A country with thirty-six banks of issue

The Swiss franc, introduced by the federal coinage law of 1850, had a single federal coinage from the beginning, while paper money remained a matter for the banks. Earlier chapters of this book have described how cantonal banks and private commercial banks, the Zürcher Kantonalbank among them, issued their own banknotes under cantonal rules and later under federal supervision. The system began with a handful of institutions. According to the Historical Dictionary of Switzerland there were eight banks of issue in 1850, while by 1879 their number had risen to thirty-six. A federal law of 1881 imposed common rules on note issue, redemption and metallic cover without abolishing the plurality of issuers.¹

Contemporaries and later economists have argued about how well this decentralised regime worked. It was a form of regulated free banking, and research published in recent years has found that it functioned better than its critics claimed in some respects. Its weaknesses nevertheless became visible in every crisis. Because the issuing banks had an incentive to keep their metallic reserves as low as the law allowed, notes flowed back to them for redemption in times of stress, coin was hoarded and the economy suffered from a shortage of means of payment precisely when it needed liquidity most.² The franc also tended to trade below its parity against the French franc, since Switzerland lacked an institution that could defend its exchange rate by raising a central discount rate. Together with the deflation of the 1880s, these problems convinced a growing part of the political class that decentralisation had reached its limits.

The constitutional article of 1891

The first attempt to give the Confederation a monopoly of note issue failed. A popular initiative submitted for this purpose was rejected at the ballot on 31 October 1880. A decade later, the Federal Assembly proposed a revised Article 39 of the Federal Constitution, and on 18 October 1891 the people and the cantons accepted it. The new article provided that the right to issue banknotes and other equivalent monetary instruments belonged exclusively to the Confederation. The Confederation could exercise this monopoly through a state bank or through a central joint-stock bank under its participation and supervision, and at least two thirds of the net profit were to go to the cantons. The article was accepted with 59.3 per cent of the votes and a majority of the cantons. Support was highest in Schaffhausen, at 87.6 per cent, and lowest in Geneva, where only 8.0 per cent voted yes.³

The Geneva result deserves a moment’s attention in a book that has a companion volume on Geneva. The city on the Rhône had its own tradition of private banking and a well-established cantonal bank of issue, which is why its voters saw the monopoly as an intrusion by Bern into matters that had been settled locally for generations. That the francophone financial centre voted almost unanimously against a federal note monopoly while the small industrial canton of Schaffhausen voted almost unanimously in favour illustrates how strongly monetary questions were tied to regional identity and federalist sentiment. The later decision to divide the seat of the national bank between Bern and Zurich has to be read against this background of regional rivalry.

The wording of the 1891 article left the decisive question open. While it allowed either a state bank or a joint-stock bank, it said nothing about the seat, the governance or the share of the cantons in the capital. Richli, looking back at the legislative history, has observed that the parliamentary process leading to the National Bank Act took almost fifteen years, precisely because each of these points divided the country.⁴

The failed federal bank of 1897

The first implementing statute chose the most centralist of the permitted options. The Federal Act on the Establishment of the Swiss Federal Bank (Bundesgesetz über die Errichtung der schweizerischen Bundesbank) provided for a pure state bank owned by the Confederation. Parliament passed it with comfortable majorities in the National Council and a narrow one in the Council of States, where it obtained 20 votes against 17. Opponents launched a referendum. At the popular vote of 28 February 1897, with a turnout of 64.6 per cent, the statute obtained only 43.3 per cent of the votes and was rejected.⁵

The title of the Swissvotes analysis, which interprets the rejection as a settling of accounts with the Radicals and the Socialists, captures the political mood. The opposition combined federalists in the Catholic-conservative cantons, who feared a further growth of federal power, with liberal bankers and business circles who distrusted a bank directed by federal officials and exposed to parliamentary pressure. The cantonal banks, which would lose their note business, were also sceptical, because a state bank owned by the Confederation promised them little in return. For Zurich, the question of the seat added a further dimension. A state bank would almost inevitably have been placed in the federal capital, whereas the commercial and financial community of Zurich expected the central bank to be located where the money market actually functioned.

The compromise of 1905

After the defeat of 1897, the Federal Council and Parliament worked towards a solution that could survive a referendum. The result was a central bank in the legal form of a joint-stock company governed by special federal law, which is how the Swiss National Bank is still organised. The cantons, the former banks of issue and private investors became shareholders, while the Confederation itself held no shares. The cantons were compensated for the loss of their note-issuing revenue through their participation in the capital and in the profits. According to the Swiss National Bank’s own historical account, the negotiations turned on three points: the legal structure of the bank, its seat and the financial interests of the cantons. The compromise gave the bank a double seat in Bern and Zurich.⁶

The Federal Act on the Swiss National Bank of 6 October 1905 entered into force on 16 January 1906.⁷ In the words of Jakob Tanner in the Historical Dictionary of Switzerland, the long and conflict-laden legislative process thus ended in a compromise. Tanner points out that Switzerland was a latecomer among European states: France had established its central bank in 1800, Austria in 1816, Germany in 1875 and Italy in 1893.⁸ Harold James, the principal author of the bank’s centenary history, has compared the Swiss National Bank with the Federal Reserve System of the United States, created in 1913: both were late births, conceived in response to the perception of market failures and designed to rationalise the payments system of a federal country.⁹

The legal construction had lasting consequences. Because the bank was a company with shareholders, it had a general meeting, a Bank Council with representatives of the regions and of business, and a Governing Board (Direktorium) of professional central bankers appointed by the Federal Council. The profit distribution rules favoured the cantons, which as a group became the largest shareholders. Today the share capital amounts to 25 million francs in 100,000 registered shares with a nominal value of 250 francs, about 55 per cent of which are held by cantons, cantonal banks and other public-law bodies, while the dividend is capped at six per cent of the share capital.¹⁰ The swissinfo account of the founding put the logic of this construction succinctly: the private company form was chosen to appease the cantons and cantonal banks that were losing their monetary sovereignty, making them majority shareholders and giving them two thirds of the annual profit.¹¹

Notes

1. Peter Püntener, “Notenbanken”, in: Historisches Lexikon der Schweiz (HLS), https://hls-dhs-dss.ch/de/articles/013746/. The article describes the development from several public and private note-issuing banks in the regeneration period to 36 institutes in 1879, the federal law of 1881 and the liquidation of the note business of the old issuers by 1910. See also: Püntener, “Notenbanken” (HLS), on the deflation of the 1880s, the instability of the franc exchange rate and the resulting move to centralisation, https://hls-dhs-dss.ch/de/articles/013746/. ↩
2. swissinfo.ch, “Erst die Nationalbank hat den Franken ‘nationalisiert’”, https://swissinfo.ch/ger/erst-die-nationalbank-hat-den-franken--nationalisiert-/5939048. The article notes that before 1907 private commercial banks and cantonal banks issued their own notes, that monetisation of the economy grew faster than gold reserves and that the hoarding of coin in crises hampered the economy. ↩
3. Christian Bolliger, “Banknotenausgabe: Ein Bundesmonopol mit Fragezeichen”, in: Handbuch der eidgenössischen Volksabstimmungen 1848–2007 (2010), analysis of the vote of 18 October 1891, available at https://swissvotes.ch/attachments/ea57b4ae34f16ca2222dbde977a9c3f401e11f3b8b4c1ce044ee2ede2ffccaa3. The analysis also refers to the failed initiative of 1880 and the regulatory attempts of 1874 and 1881. ↩
4. Paul Richli, “Der Schweizer Franken und sein Wert – ein juristischer Aufreger erster Güte”, Festvortrag zum Dies Academicus der Universität Luzern, 7 November 2013, Luzerner Universitätsreden Nr. 26, p. 12, https://www.unilu.ch/fileadmin/universitaet/unileitung/dokumente/universitaetsreden/Unireden_26.pdf. Richli quotes the text of the 1891 article, mentions the failed vote of 28 February 1897 and describes the compromise that divided the head office between Bern and Zurich. ↩
5. Swissvotes, vote no. 50, “Bundesgesetz über die Errichtung der schweizerischen Bundesbank”, 28 February 1897, https://swissvotes.ch/vote/50.00. The record gives the parliamentary votes (National Council 83 to 49, Council of States 20 to 17), the turnout of 64.60 per cent and the yes share of 43.33 per cent. The accompanying analysis is titled “Das Nein zur Bundesbank als Abrechnung mit Radikalen und Sozialisten”. ↩
6. Swiss National Bank, “How long has the Swiss National Bank existed?” (SNB explained: History), https://www.snb.ch/en/snb-explained/history. The page names the legal structure, the seat and the cantons’ financial interests as the points of contention and describes the solution as a “special-statute joint-stock company” with head offices in Berne and Zurich. ↩
7. Swiss National Bank, “The SNB as a joint-stock company”, https://www.snb.ch/en/the-snb/organisation/snb-joint-stock-company; the date of 6 October 1905 is also given in Wikipedia, “Swiss National Bank”, https://en.wikipedia.org/wiki/Swiss_National_Bank. ↩
8. Jakob Tanner, “Schweizerische Nationalbank (SNB)”, in: HLS, version of 29 June 2015, https://hls-dhs-dss.ch/de/articles/013747/2015-06-29/. The article describes the SNB as a joint-stock company with special status, gives the dates of the European central bank foundations and states that the 1905 law ended a lengthy and conflict-laden legislative process in a compromise. ↩
9. Harold James, speech at the launch of the commemorative publication “The Swiss National Bank 1907–2007”, Zurich, 21 June 2007, https://www.snb.ch/public/publication/en/www-snb-ch/publications/communication/speeches/2007/ref_20070621_hja/publications0_en/ref_20070621_hja.en.pdf. ↩
10. Swiss National Bank, “The SNB as a joint-stock company”, https://www.snb.ch/en/the-snb/organisation/snb-joint-stock-company, on share capital, registered shares, public and private shareholders, the absence of any shareholding by the Confederation and the dividend cap of 6 per cent. ↩
11. swissinfo.ch, “Erst die Nationalbank hat den Franken ‘nationalisiert’”, https://swissinfo.ch/ger/erst-die-nationalbank-hat-den-franken--nationalisiert-/5939048. ↩

For general information only. This article does not constitute legal or tax advice, does not replace advice on an individual case and creates no lawyer-client relationship. It reflects the legal position as of September 2025.