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Why banks are failing to manage money

OK, down to business. What has the failure of government to regulate the internet got to do with banks?

Quite a lot actually as governments and banks are closely intertwined, as demonstrated throughout this financial crisis.

Banks control economies and governments need economies to run efficiently, hence the two go hand in hand.

And just as governments are conflicted, as they move from old world to new world, so are banks.

And I’m not talking about Bank 2.0 here or anything.

I’m talking about the transition of society from one where everyone was disconnected to one where everyone is connected.

This is my main theme in presentations right now.

We are moving from a planet where everyone was disconnected, because they could only connect face-to-face physically and locally.

Air travel was limited and motivations to travel were less.

So the planet was disconnected, and only local communities connected.

Then, as globalisation has hit, we’ve connected the whole planet through commerce and now through technology.

The result is that 6.3 billion people are suddenly all connected wirelessly.

They can communicate wirelessly.

Not just with voice calls, but with email, text messages, data, images, files, presentations, videos, photographs … you name it.

All through the global network of mobile and internet.

The whole of Planet Earth is connected P2P.

This is a fundamental revolution of our society.

A revolution that takes us from a disconnected planet to a connected one socially, commercially, economically, politically and technologically.

That’s where governments have their conflicts right now and, from a banking context, it is also where banks are challenged.

Banks are seeing new forms of credit and debit systems forming every day from mobile wallets to social lending to social credits to time exchanges to complementary currencies to virtual currencies to …

The list is almost endless and is changing every day.

What this means is that we will see a new world order emerge.

The new world order will be based around the exchange of value in the form of virtual credits and debits, and is seen already in the forms of gaming with Zynga and iTunes.

Over time, it will grow to reflect a global clearing system for virtual credits and debits of value via anything from a monetary based transaction to a time transaction to a gaming transaction.

This global value exchange system differs fundamentally in form and feel from the old world financial value exchange.

In this new world banks will move, as mentioned on this blog before, from managers of money to managers of data.

They probably won’t be banks however.

They will be data managers, information leveragers, knowledge mechanisms and value stores.

This transition from old finance world to new value world will be a painful one for some.

We will see new entrants appear who do this value management brilliantly and some incumbents evolve to compete effectively with them.

However, many old world money managers will die and disappear, slowly but surely.

They just won’t ‘get it’.

As I presented this theme to my Abu Dhabi audience, one of the questions that came up was: “who will regulate these virtual currencies?”

This always comes up, as does compliance.

My answer is that the new system will gradually stabilise like the old system did, and the new system will gradually emulate many of the mechanisms of the old.

After all, as societies evolve their morals and mechanisms do too, and often reflect those of the past but in new ways.

This is best illustrated by my story of Second Life, which I use regularly to point out that the virtual world banks realised, as their banking system collapsed, that they needed to ensure virtual world representations of banks needed to reflect the representations of the real world banks, with real world banking licences.

However, the major shift is that banks will not retain their status in this new world by relying on their old world banking licences.

The new world will need licences, but licenses to manage value rather than money, as money has become meaningless.

As we have shifted from managing money to data to value, we have seen a shift from money managers to data monitors to value exchanges.

That’s the real shift and the new government licencing system will eventually emerge that recognises the value exchange manager rather than the traditional money manager.

Remember, the traditional money manager is the bank.

After all, as governments realise they cannot regulate the internet the way they do today, banks will realise they cannot regulate money the way they do today.

The two go hand-in-hand.


About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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  • tonyw

    So we’ve moved from a system backed by gold & silver to a government one backed by 99% nothing and now we’ll move to one backed 100% by nothing – new world order indeed:-)

  • Can I suggest that there is a rich seam of competitive advantage to be garnered by the banks – indeed the entire sector – if only they could recognise it? The growing evidence is that ICT communications in themselves are not now the critical competitive factor; nor is the traditional face-to face dealing service model. The critical factor IMO is the combination of the two.
    The evidence is that the communities (whether business, civil or social) that are strongest at developing their own assets and additional benefits are those that are intensively linked through ICT and face-to-face transactions – interactions that are complementary and mutually reinforcing. One major signifier of this has been the virtual reinvention of city centre and downtown areas that can best accommodate the creative clusters of people who best work, live and recreate near each other.
    Banks with their many discreetly layered organisations from street-scape to global, are ideally positioned to service and exploit this new economy and new society. They should aim to fidn the new wats to best manage ICT, money and real-people relationships.
    But please, please, can the banks bring an immediate end to those bone-headed UK TV advertisement showing utterly unconvincing ‘friends and colleagues’ gleefully cavorting about the banking office playing at being radio studios or something or other… do the banking corporate mandarins have no conception of how infuriating are such expensive and pointless pantomimes to: those young would-be house buyers desperately seeking first-time mortgages in vain; the SMEs having no success in accessing desperately needed bank funding; and – above all – the burden UK taxpayer who is involuntarily subsidising the entire banking sector, bonus culture, office pantomimes et all?

  • Our monetary system is based on credit or debt, and without constantly continuing issuance of debt, the whole thing falls apart. Our system of ‘fractional reserve banking’ gives commercial banks a licence to literally create money out of thin air – and then charge interest on the money they created. Fractional reserve banking is the cause of spiralling debt.
    A public campaign has started to end fractional reserve banking, and I recommend readers to look at the Positivemoney.org.uk website which explains further.

  • Some interesting views are put forward in the recent Adam Curtis documentary “All Watched Over By Machines Of Loving Grace”
    This week’s episode concerned “The Use and Abuse of Vegetational Concepts” about ideas of self-organisation in holistic ecosystems and how that is a gross simplification misrepresenting the world..