A Comic Artist's Rendition of the 'Hovering Banks'

Introducing Miguel Guerra's new images of our monetary system

Earlier in this series I introduced the hovering banks image, in which I portrayed the banking sector ‘hovering’ over society. I’ve found it to be one of the simplest ways to quickly represent both the operations and power dynamics of the institutions that underpin our standard monetary system. Now I am pleased to announce that comic artist Miguel Guerra has created a much better looking version of the image for me. Here it is!

This image has both an educational and a political agenda, but let’s first explore the educational side. We can use it to quickly hone in on the major players of the standard digital money system - banks and central banks - and to show their operations. Picture yourself, for example, making a bank transfer, or walking into a shop to tap your card on a contactless payments terminal. Both cases can be represented on this image by showing a blue payments request ‘beaming’ up to a bank from the ground, and another blue payments confirmation beaming down to whoever you’re paying. In the image above you’ll note that a blue beam enters one bank, and exits another, which means it is showing a payment between two people who bank at different banks. This in turn will require those two banks to deal with each other at the central bank.

Notice that the ‘beams’ have different colours. The ones going to and from the banks are blue, whilst the ones going from the banks to the central bank are red. This is because these beams are requests to move two different forms of money - bank-money (blue) and state money (red). In various earlier pieces I have noted that bank-money is promises issued out by banks, whilst state money is issued out by state institutions. Our attempts to move private digital bank-money between each other results in banks having to move state money between each other at the central bank, and you can see this ‘route’ playing out in the image. To read more about this, check out my piece on credit creation of money (often colloquially called ‘fractional reserve banking’).

The image can also be altered to show different styles of payment. For example, the image below shows a payment between two people who bank at the same bank. In this case, no central bank operations are required, because two people are simply reassigning bank promises issued by one bank between each other.

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How does this relate to my structure-function series?

I have written two pieces about the structure of money versus the ‘functions of money’, arguing that the former is often neglected in favour of the latter, which creates all manner of confusion. The first piece in that series was called How the 'Functions of Money' blind us to the Structure of Money and the second was called Overcoming Monetary Nihilism, but both called for stronger imagery of the structure of monetary systems. A system however, is a complex multi-part structure and this ‘hovering banks’ image should be seen as but one element of it. It does not show, for example, the complex interdependent network dynamics of a monetary system, but it does give us a quick and easy way to visualise the core institutions at the centre of monetary systems.

Beyond this educational agenda, however, this image has a political agenda, because it provides a way to quickly point out hot topics in monetary politics. Below I sketch some of those out.

The ‘cashless society’

The image shows the digital bank-money payments system. This system, however, is in competition - or battle - with the physical state money system (aka. cash). While the banking sector is able to use digital state money at the central bank (represented in the image by those red beams), the only form of state money we can directly hold is physical cash, which roams around with us ‘on the ground’ as it were, out of the view of the major monetary institutions. I have written much about the erosion of the cash system (and the ‘war on cash’), but when we zoom out the decline of cash means that the relative power balance in the monetary system is shifting away from the state and towards the banking sector. What is referred to as the ‘cashless society’ is the situation in which we have to route all transactions via the banking system.

To return to the image, a ‘cashless society’ is one in which every transaction has to be ‘beamed’ through the banks, as it were. This has one immediate effect of bolstering the power of the banking sector, and making it gatekeeper to almost all transactions. This is turn opens the way for far greater levels of payments surveillance and possible censorship of payments. It also introduces key weaknesses into the monetary system - in that the central set of players can fail - as well as a host of concerns about who gets included or excluded.

The rise of digital money is the rise of Big Tech

One of the most overlooked elements of the rise of the digital bank-money system is that it is required by Big Tech corporations. The latter cannot interoperate with cash, and to consolidate the power of Big Tech there has to be a transition to digital money. Put another way, the banking sector provides the infrastructure that enables Big Tech giants to get even bigger. This is most easily seen in the fintech sector, which specialises in providing integrations between Big Finance and Big Tech.

CBDC

The debate around ‘CBDC’ (or ‘central bank digital currency’) has gone a lot more mainstream in recent months, and you’ll probably see it popping up in the news. The debate is all about whether people should be allowed to have direct relationships with the central bank, rather than having to route everything through those commercial banks that surround the central bank.

There is a lot of politics in this issue, and every economic pundit in the world right now is adding their two cents to this debate. To understand the politics, however, just look at the image and ask yourself what happens if ordinary people start beaming payments requests directly to the central bank, and using the ‘red’ form of money there, rather than going via commercial banks and using their blue form of money. The answer should be fairly obvious. Firstly, the commercial banks will lose power, and potentially get destabilised. Secondly, the central bank will gain (or reassert) power, and potentially get new surveillance capacities. This poses a tricky set of questions: on the one hand such a move could help weaken an extremely powerful and domineering banking sector - which banking reform campaigners might welcome - but it could also give too much power to states, unless privacy protections were secured.

The ‘plug-in’ players

This image is incomplete in that it only shows the primary and secondary monetary institutions - central banks and banks. As I sketched out in my money in orbit piece, there is a whole universe of tertiary players that ‘plug in’ to the secondary layer, such as PayPal, Venmo and - increasingly - the so-called ‘stablecoin’ systems. These players do not market themselves as banks, but back themselves with reserves held in the banking system, so are tethered to it. Right now there is much hype and regulatory attention being focussed on stablecoin players - many of whom are using crypto technology (see below) to create semi-decentralised version of systems like PayPal. Be very careful when approaching these debates however: many Big Tech firms, like Facebook, are creating third-tier forms of corporate-issued money, but marketing them falsely as ‘crypto-currencies’.

So what about crypto-tokens?

You might have noticed that I’ve been putting out some critical pieces about Bitcoin (such as my piece on crypto countertrade, and Bitcoin’s conservative ideology). I do this because the crypto-token community likes to present itself as the anti-thesis of the standard banking sector - represented in our image - and as a solution to the problems found within it. I am deeply skeptical about many of the claims made by crypto hardliners, and also deeply concerned about the misinformation they routinely spread (and which is repeatedly taken at face value by the media). There is a role for crypto-tokens to play in the future monetary landscape - especially via the countertrade mechanism described in the piece linked above - but the crypto scene is rife with confusion, self-serving narratives, and also outright charlatans. This is why I am going through a phase of producing mythbusters about the sector, so expect more to come.

Three major points in summary

  1. The ‘hovering banks’ image is a partial representation of one element of the structure of monetary systems

  2. The banking sector has huge power in our society, and this is only increasing as the digital money systems that banks underpin spread. This in turn creates synergies between Big Finance and Big Tech

  3. The crypto-token scene, exemplified by Bitcoin, makes a lot of noise about solving this problem, but you should be extremely suspicious of this narrative

See you next time!

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