Tom Woods and Bob Murphy address this on their Contra Krugman podcast.[1] Basically the scheme would ban fractional reserve banking.[2] So banks could still loan money, but they would have to use money sources other than checking accounts.
They are wrong. This was not about fractional vs full server banking. They are also wrong about what how fractional reserve banking works. The Swiss initiative (that I voted on an rejected) was only that the central bank would have to full control, it did not force 100% reserve banking.
Woods and Murphy follow the Rothbardian school and that is a minority even among Austrian Economists. If you want to see a more modern Austrian-Chicago critic on that, I would recommend George Selgin.
Are you saying that individual Swiss banks are currently free to make up their own reserve requirements? In the American system, as I understand it, the Federal Reserve (the US central bank) sets reserve requirements which the banks must follow. I thought this was how the Swiss system worked also.
If the Swiss central bank already sets reserve requirements, what would this proposal do?
> Are you saying that individual Swiss banks are currently free to make up their own reserve requirements?
No, but bank lending is not made from customer deposits or bank reserves - lending occurs first, then reserve requirements are met afterwards. See for instance this research paper from Standard & Poor's:
Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves
Eliminate the reserve requirements, which would no longer be required because banks would not hold client’s on-demand deposits on their balance sheets at all. They would be held on the central bank’s balance sheet.
[1]: https://contrakrugman.com/ep-141-do-you-want-the-crankish-mo...
[2]: https://en.wikipedia.org/wiki/Fractional-reserve_banking