Finance: Servant or Deceiver?: Financialization at the by P. Dembinski

By P. Dembinski

Throughout the last 30 years, finance has elevated not just its percentage of financial task but additionally of people's aspirations. This has transformed society via more and more organizing it round the look for monetary efficiency. Is a society in line with basic values of unfastened judgment, accountability and unity nonetheless attainable?

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Any temporarily idle unit of accounting money – information recorded in a technologically hermetic area – can readily be converted into a yield-earning or risk-bearing asset, provided it is traded for or traded as a financial asset. As this process of converting idle cash balances into financial assets becomes more efficient, there is less and less reason, or opportunity, for money to act as a store of wealth. This function is being taken over by the second specialized area – finance. Financial innovation, boosted by technological capabilities, has encouraged the spread of relatively liquid types of financial assets that can perform The Historical Development of Finance 31 near-monetary functions.

As they developed their international financial activities, the commercial banks opened up cracks in the Bretton Woods system, and the cracks gradually widened. From the early 1960s onwards, the commercial banks introduced a radical financial innovation, a new kind of private liquidity instrument: first eurodollars, and later eurocurrency. This enabled them to take full advantage of their international expansion. Eurodollars were dollars which were held by active banks – and could be used by them to grant loans – outside the USA.

This intuitive discovery, now more than a century old, can be used to formulate the ‘dual anchor of trust in money’ hypothesis, which helps explain the profound changes that money is now undergoing as a result of financialization. These changes are due to the spread of ICT (through financial innovation) and the fact that money is no longer linked to any external standard. According to the ‘dual anchor’ hypothesis, monetary regimes can only be viable if they succeed in controlling three fears that surround the use of any means of payment: (i) fear that it may be counterfeit, (ii) fear that it may lose some or all of its value, and (iii) fear that it may not be accepted (redeemed) by third parties.

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