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An upcoming referendum in Switzerland could fundamentally change the country's monetary system.
The vote will be on the introduction of the sovereign money initiative, which would end fractional reserve banking in Switzerland.
System - Centuries - Questions
Such a system has not been tried in centuries and there are serious questions about how it would be implemented.
Economists from UBS examined what the implementation of the new system might look like if the vote passes.
Month - Voters - Switzerland - Proposal - Theory
In just under a month, voters in Switzerland will be asked to decide whether or not to approve a proposal that could — in theory at least — change the entire face of the global financial system.
On June 10, a referendum will be held asking Swiss citizens if they back the introduction of a concept known as the sovereign money initiative, proposed by a group called the Vollgeld Initiative.
Level - Money - Initiative - Change - Money
At it's most basic level, the sovereign money initiative boils down to a change to what is recognised as money and would stop banks being able to extend credit in the way the have done for centuries.
First, it's important to understand the difference between sovereign money and book money: sovereign money is money brought into circulation by the central bank of a given country, and according to Vollgeld Initiative campaigners, makes up around 10% of the money in circulation in Switzerland. The other 90% is either electronic or book money and is created by non-central bank institutions such as regular banks through lending.
Banks - Book - Money - Money - Customer
Banks create this book money by lending out the money they are given in customer deposits and mortgage payments. They are only required to hold a fraction of this money on their books, even though customers still own this money, and lend the difference. This is known as fractional reserve banking but under the new proposals banks would not be able to do this,...
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