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By M. Isi Eromosele
The on-going financial crisis results not from a cyclical or
managerial failure, but from a structural one.
So far, the conventional solutions that are being applied -
nationalization of the problem assets (as in the original Paulson bailout) or
nationalization of the banks (as in Europe ) only deal
with the symptoms, not the systemic cause of today’s banking crisis.
Similarly, the financial re-regulation that has been on
countries’ political agenda will, at best, reduce the frequency of such crises,
but not avoid their re-occurrence.
An encompassing and resilient solution will require a
systemic understanding and technical answer that would ensure that such crashes
become a phenomenon of the past. This would necessitate a conceptual
breakthrough that takes its evidence from balanced, structurally sound and
highly functioning eco-systems, including monetary and financial ones.
From a systemic perspective, a sustainable vitality must be
maintained that diversifies the types of global currencies and institutions and
introduces new ones that are designed specifically to increase the availability
of money in its prime function as a medium of exchange, rather than for savings
or speculation.
Additionally, these currencies would be expressly designed
to link unused resources with unmet needs within communities, regions or
countries. These currencies are would be complementary because they would not
replace the conventional national money, but rather, operate in parallel with
it.
Application to Financial/Monetary Systems
Viewing economies as flow systems aligns directly into
money’s primary function as a medium of exchange. In this view, money is to the
real economy like biomass in an ecosystem. It is an essential vehicle for
catalyzing processes, allocating resources and generally allowing the exchange
system to work as a synergetic whole.
It must be emphasized that the findings described above are
relevant for any network of a similar structure, therefore the applicability to
an economic network is not simply an analogy, but a direct application of the
theoretical framework described above.
The connection to structure is indeed immediately apparent.
In economies, as in ecosystems and living organisms, the health of the whole
depends heavily on the structure by which the catalyzing medium, in this case,
money, circulates among businesses and individuals. Money must continue to
circulate in sufficiency to all corners of the whole world because poor
circulation will strangle either the supply side or the demand side of the
global economy, or both.
The global monetary system is itself an obvious flow network
structure, in which monopolistic national currencies flow within each country
(or group of countries in the case of the Euro) and interconnect on a global
level.
The technical justification for enforcing a monopoly of
national currencies within each country was to optimize the efficiency of price
formation and exchanges in national markets. Tight regulations are in place in
every country to maintain these monopolies.
Seemingly efficient and sophisticated global communications
infrastructures had been built to link and trade these national currencies. The
trading volume in the foreign exchange markets reached an impressive $3.2
trillion per day in 2007, just before the global financial crisis began, to
which another daily $2.1 trillion of currency derivatives should be added (Bank
of International Settlements).
No one questioned the efficiency of these markets, but their
lack of resilience has been amply demonstrated in the on-going financial crisis. The
global network of the monopolistic national monies evolved into an overly
efficient and dangerously brittle system.
This system’s lack of resilience, however, has shown up not
in the technical field of the computer networks (which all have backups), but
clearly in the financial realm. This fact has been spectacularly demonstrated
by the large number of monetary and banking crashes.
Such crisis, particularly a combined monetary and banking
crash, is the worse thing that can happen to the global financial system.
Even more ironically, whenever a banking crisis unfolds,
governments invariably help the larger banks to absorb the smaller ones, under
the misguided logic that the efficiency of the system is thereby further
increased.
When a failing bank has proven to be “too big to fail”, why
not consider the option to break it up into smaller units that can be made to
compete with each other; similarly to what was done in the U.S., for instance,
with the break up of the Bell telephone monopoly into competing “Baby Bell’s”?
Instead, what tends to be done is to make banks that are “too big to fail” into
still bigger ones, until they become “too big to bail”.
The global financial system is yet to formally quantify the
window of viability of the global monetary system, although such an exercise is
achievable if the data about global flows by currency and institution are
utilized.
However, seen as an ecosystem, the global financial system
is dealing with a monoculture of bank-debt money worldwide. A monoculture is by
definition lacking the diversity of any natural ecosystem and pushes the system
away from the resiliency.
Similarly, the substance that circulates in the global
economic network, money, is also maintained as a monopoly of a single type of currency
(bank-debt money, created with interest).
Imagine a planetary ecosystem where only one single type of
plant or animal is tolerated and artificially maintained and where any manifestation of
diversity is eradicated as an inappropriate ‘competitor’ because it is believed it would
reduce the efficiency of the whole.
The dynamics of an artificially enforced financial
monoculture in a complex system where efficiency is the only criterion considered relevant.
The only eventual possible outcome of such a system is systemic collapse.
The Systemic Solution
The systemic solution to the global monetary crisis,
therefore, is to increase the resilience of the monetary system, even if at
first sight that may be less efficient.
Conventional economic thinking assumes the de-facto
monopolies of national monies as an unquestionable given. The logical lesson from nature is
that systemic monetary sustainability requires a diversity of currency systems,
so that multiple and more diverse agents and channels of monetary links and
exchanges can emerge.
The operation of complementary currencies of diverse types
would enable the global economy to flow back towards a higher sustainability.
While this process clearly reduces efficiency, that is the price to pay for increased
resilience of the whole.
Complementary currencies would facilitate transactions that
otherwise wouldn’t occur, linking otherwise unused resources to unmet needs and
encouraging diversity and interconnections that otherwise wouldn’t exist.
Allow several types of currencies to circulate among people
and businesses to facilitate their exchanges, through the implementation of
complementary currencies. These different types of currencies are called
complementary because they would be designed to operate in parallel with, as complements to, conventional
national monies.
The structural problem is the monopoly of one type of
currency and replacing one monopoly with another isn’t the solution.
Complementary currencies would encourage a much higher increase
in the degree of diversity and interconnectivity in the global system, due to
their ability to catalyze business processes and individual efforts that are
too small or inefficient to compete with national currencies in a global market
place.
This approach will certainly appear unorthodox to
conventional thinking, but conventional thinking is precisely what got the
global financial into trouble to begin with. This insight can also resolve the dilemma
of what to do now about today’s systemic global banking crisis.
M. Isi Eromosele is
the President | Chief Executive Officer | Executive Creative Director of Oseme
Group - Oseme Creative | Oseme Consulting | Oseme Finance
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2012 Oseme Group
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