In early May 1970, a long-standing wage dispute between Irelands banks and their employees unions finally came to a head. The staff walked out, and to the nations horror virtually the whole of Irelands banking system shut up shop. Wage negotiations dragged on into the summer, and then through the autumn. In the end, it was November before the banks reopened. For six and a half months, Irish companies and individuals had to survive without access to the facilities of the modern monetary system: no bank accounts; no clearing of cheques; no withdrawals of cash; no wire transfers; and so on.End of Moneyby David Wolman Buy it from the Guardian bookshopSearch the Guardian bookshop Most people, when they hear this story, assume that its effects on the economy must have been catastrophic. The reaction at the time was no different. A contemporary newspaper warned darkly of “a rapidly growing paralysis… spreading through the economy because of the banks dispute”. The reality was very different. The Irish Central Bank concluded in its official review of the episode not only that “the Irish economy continued to function for a reasonably long period of time with its main clearing banks closed for business”, but even that “the level of economic activity continued to increase”. In the absence of the official banking system, people and companies simply resorted to using private IOUs to settle payments. Few people would have believed that such a widespread and successful ad hoc monetary system could spring up and spontaneously replace the official version. But in the breach, it did – and it worked.
Archive for the ‘Banking Systems’ Category
SHANGHAI—Chinese Premier Wen Jiabao told a national audience on Tuesday that China’s state-controlled banks are a “monopoly” that must be broken, in an unusually blunt appeal for a shake-up of the creaky financial system of the world’s No. 2 economy.
Mr. Wen’s declaration on a national radio program on Tuesday represents an 11-hour push for an overhaul by China’s top economic official, who formally came into office in 2003 with a reputation as a reformer but has acknowledged publicly his regrets that he didn’t go far enough. Mr. Wen is expected to step down as premier in a once-a-decade leadership change that begins late this year.In an evening broadcast on state-run China National Radio, Mr. Wen told an audience of business leaders in the export-oriented province of Fujian that China’s tightly controlled banking system needs to change.
“Let me be frank. Our banks earn profit too easily. Why? Because a small number of large banks have a monopoly,” said Mr. Wen according to the transcript of the program posted on the broadcaster’s website. “To break the monopoly we must allow private capital to flow into the finance sector.”
The push is part of a broader set of issues over China’s future growth. The country’s economic expansion is set to slow in coming years after racing ahead at a torrid pace over the past decade, raising questions over whether it can switch from a model based on exports and investment to one that relies more on a rising consumer culture.
That has led to a nationwide conversation over China’s tight grip on its financial system, which favors big state-owned firms but has been criticized by economists and even some reformers in China.
To realize the economic transformation, “private companies should be encouraged to get into the financial-services industry,” said Fang Xinghai, director-general of Shanghai Municipal Financial Services Office and a former World Bank economist, in an interview at China’s Boao Forum for Asia this week.
As the cost of a college education continues to rise, a startup called SoFi is offering a way for alumni to offer students financial assistance and more.Co-founder and CEO Mike Cagney describes the current student loan system as a “classic market failure,” resulting in students who are stuck with high interest rates and heavy debt that they struggle to pay off. He says that if you can remove government from the equation specifically government loans and replace it with alumni, then “you create a very virtuous cycle.”So that’s what SoFi tries to do. The company is creating university-specific funds for alumni to invest in, and those are used to make loans to students. SoFi says it’s offering to cover the full cost of attendance for participants, with loans ranging from $5,000 to $200,000. The loans are 6.24 percent fixed rate, and they can drop to 5.99 percent, lower than federal Stafford and PLUS loans and many private loans. So Students get relatively low interest rates, while alumni get a significant financial return.The benefits aren’t purely monetary. Through its website, SoFi tries to connect the participating alumni and students, for example if someone is looking for mentorship or help with their job search. Cagney notes that the loans create a financial incentive for alumni to pitch in — after all, they want students to do well so they can pay off the loans. On the flip side, he says that some alumni don’t care about making money from the investments at all, and want to use the interest payments to a nonprofit organization that will help the students something that SoFi is investigating.Of course, alumni donations are already an important source of funding for university programs. Cagney says these loans can be made from tax-deferred accounts like a 401k, so they shouldn’t divert money from traditional alumni giving.Cagney and his co-founders ran a pilot program at Stanford where they attended the Graduate School of Business last fall, raising a $2 million fund from 40 alumni. This fall, SoFi is expanding to 40 locations and hopes to lend out $150 million.As for its own funding, the company has raised $4 million from Eric Schmidt’s Innovation Endeavors, and board members Joe Chen founder and CEO of RenRen and Steve Anderson founder of Baseline Ventures.
Facebook’s 27-year-old founder, Mark Zuckerberg, isn’t usually mentioned in the same breath as Ben Bernanke, the� 58-year-old head of the Federal Reserve. But Facebook’s early adventures in the money-creating business are going well enough that the central-bank comparison gets tempting.
Everything started quietly, in 2009, with the experimental launch of Facebook Credits, billed as “the safe and easy way to buy things on Facebook.” Anyone who chipped in $5 from a Paypal account, Visa card or the like, could do the equivalent of changing money on an overseas trip. Voila! — $5 turned into 50 Facebook Credits.
Initially, the Credits-based economy was confined to the virtual world’s trifles. Credits could be spent to buy imaginary gold bars for aficionados of Mafia Wars, or bouquets of virtual flowers for birthday postings on friends’ Facebook accounts. This new form of digital money was cute but essentially useless for mainstream activities.
Lately Credits have become more intriguing. Warner Brothers this summer offered movie-goers a chance to watch “Harry Potter” and “The Dark Knight” for 30 Credits apiece. Miramax and Paramount countered with film-viewing offers, too. In a provocative post this week on Inside Facebook, guest blogger Peter Vogel argues that Credits in the next few years will become more of a true currency.
SILVA JARDIM, Brazil—After school and on weekends, Carlos Leandro Peixoto de Abril sells ice cream made by his grandmother from a stoop alongside the familys cinder-block home.Instead of Brazilian reais, though, the 11-year-old prefers payment in capivaris—a local currency emblazoned with the face of a giant rodent. Bills in hand, Carlos then heads to a local grocer and buys ingredients, at a special discount, for another batch of grandmas goods.The capivari circulates only in this dusty, agricultural town 60 miles north of Rio de Janeiro. The money is an effort by the town, one of the poorest in southeastern Brazil, to encourage its 23,000 residents to spend locally.Cash, Credit, or Capivaris?
The capivari is one of 63 local moneys now circulating in needy towns and neighborhoods throughout Brazil.View SlideshowDiego CamposLocals exchange capivari bills, emblazoned with the face of a giant rodent.Ten months after introduction of the capivari—named after the capybara, a pig-sized rodent common in a local river—the currency is lifting fortunes of local retailers and gnawing holes in the pockets of consumers. Capivaris pay for everything from haircuts to restaurant tabs to tithing at churches.
The mayor even has plans to open a “Capivari Megastore,” where local artisans and growers can showcase wares.The capivari is one of 63 local moneys—including bills named after the sun, cactus and the Brazil nut—now circulating in needy neighborhoods throughout Latin Americas biggest economy. The idea is gaining currency as towns seek a share of current economic growth. This month, a new local currency hit the streets in Cidade de Deus, the Rio slum that was the subject of a blockbuster film and a stop on President Barack Obamas South American tour this year.While equal in value to the real, local currencies gain traction because local merchants offer discounts when using them.
No one is forced to quit the real, but shopkeepers say greater volumes make the markdown worthwhile.”It brings customers through the door,” said Roseanne Augusto, manager of a Silva Jardim hardware store, where a builder one recent afternoon set aside 2,700 reais in supplies, about $1,520 worth. He then left the store, went to trade reais, and returned to pay with capivaris, saving 5%.
Capivaris are managed by a new, community-run Capivari Bank. Inside its one office, a brightly painted space the size of a small fast-food joint, are the banks employees, three women in their 20s.For each of the 50,000 capivaris first circulated, Capivari Bank holds an equal number of reais on deposit at a traditional bank. Tatiana da Costa Pereira, the bank manager, says she sees as many as 60 clients a day. A local police car patrols outside and a state policeman comes in regularly.The currency has been so successful the town ordered a second run of the notes, which bear serial numbers, watermarks and a hologram alongside the whiskered varmint.
The Robin Hood Tax campaign started as an idea. People loved it. We became a movement. And we’re still growing.
We’re committed to reducing poverty and tackling climate change by taxing financial transactions.
We believe it’s time to rewrite the contract between banks and society.
We are charities, green groups, trade unions, celebrities, religious leaders and politicians.
We are world leaders – President Sarkozy of France, Chancellor Merkel of Germany, Prime Minister Zapatero of Spain, among others.�
We are businesspeople – FSA Chairman Lord Turner, financier George Soros, entrepreneur extraordinaire Warren Buffet.
We are economists – Nobel Prize winners Joseph Stiglitz and Paul Krugman, Earth Institute Director Jeffrey Sachs and 1,000 other economists from across the world.
We are 256,000 Facebook friends, and tens of thousands of people taking action around the UK. We are over 115 organisations, including charities like Oxfam, Barnardo’s and Friends of the Earth, all the major trade unions and faith organisations such as the Salvation Army.�
We are part of a movement of campaigns in more than 25 countries around the world with millions of supporters.
We are a force to be reckoned with, and we’re demanding justice.
Where will Apple, Amazon, Google meet up next year or the year after?
They’re all going to be banks!
Why do you think Apple is piling up all that cash. It’s a lot of cash for a consumer products company. But it is not so much cash for a bank.
Same with Google, and esp Amazon.
So now maybe that makes it clear why they want your real name on your Google-Plus accounts, and why they don’t want to screw around with corporate presences. Not such a problem for publications like TechCrunch or Mashable, which don’t move around a lot of money. But for any business like say an oil company (extreme example), they want to have all kinds of flows hooked up to your Google account.
Google plays a huge role today in defining value in Internet commerce. Google-Plus is their integrated communication system. Over time, it’s going to be at the core of everything they do, from auctions, to paying for things with Android phones, to their groupon and yelp clones. They’re going everywhere, and this is the system that will tie it all together. So, at the outset, of course they need real identities. That Google-Plus account you’re playing with today is going to be your bank account next year.
Facebook moved the ball way down the field, but now all the other big tech companies have their clues. Not as if Amazon didn’t already have a great way to get user involvement in the definition of value in commerce on the Internet. I can’t go shopping at a real world retailer anymore without already having previously made my decision on Amazon. Maybe for a few things, it’s still necessary to see them and feel them before buying. But the user product reviews on Amazon are the new standard. Google wants some of that action.
Don’t kid yourself about art being part of this, it’s not, in any way part of it. Or sociology. Or a “feel” for users. The big deal is who can make the money flow through their networks. And when it’s all finished, what that looks like is closest to what we think of as a bank today.
The financial system poses an even greater risk to taxpayers than before the crisis, according to analysts at Standard Poor’s. The next rescue could be about a trillion dollars costlier, the credit rating agency warned.
SP put policymakers on notice, saying there’s “at least a one-in-three” chance that the U.S. government may lose its coveted AAA credit rating. Various risks could lead the agency to downgrade the Treasury’s credit worthiness, including policymakers’ penchant for rescuing bankers and traders from their failures.
“The potential for further extraordinary official assistance to large players in the U.S. financial sector poses a negative risk to the government’s credit rating,” SP said in its Monday report.
But, the agency’s analysts warned, “we believe the risks from the U.S. financial sector are higher than we considered them to be before 2008.”
Because of the increased risk, SP forecasts the potential initial cost to taxpayers of the next crisis cleanup to approach 34 percent of the nation’s annual economic output, or gross domestic product. In 2007, the agency’s analysts estimated it could cost 26 percent of GDP.
Last year, U.S. output neared $14.7 trillion, according to the Commerce Department. By SP’s estimate, that means taxpayers could be hit with $5 trillion in costs in the event of another financial collapse.
Experts said that while the cost estimate seems unusually high, there’s little dispute that when the next crisis hits, it will not be anticipated — and it will likely hurt the economy more than the last financial crisis.
Apple reportedly plans to add a near-field communications chip to a future iPhone for wireless e-wallet transactions, though the feature will not necessarily appear in this year’s anticipated iPhone 5.
Citing two anonymous sources with details on a coming iPhone, The New York Times reported on Monday that a future handset from Apple will include a NFC chip from Qualcomm. That wireless chip could allow a next-generation iPhone to be used to make mobile payments.
Author Nick Bilton said though Apple apparently plans to add the feature to a future iPhone, “it is unclear” which handset it will appear in. Apple typically releases its annual iPhone upgrade in June.
“one person familiar with the new Apple feature said the phone’s credit card information would be tied to information currently used on iTunes, which would make it simple for customers to set up the new mobile payment method on the iPhone,” the report said.
The report comes soon after a separate story from Forbes, which claimed that Apple plans to bring NFC functionality to the anticipated iPhone 5 this summer. But a separate report last week also claimed that Apple had abandoned its plans to include an NFC chip in the iPhone 5, citing “the lack of a clear standard.”
Google’s flagship, custom-built Android phone, the Nexus S, was released late last year with an NFC chip for short-range wireless data transmission. However, the feature has failed to attract any major applications thus far.
This January, AppleInsider exclusively reported that Apple was looking to hire a hardware engineer familiar with radio-frequency identification, or RFID, a type of NFC. The company also sought a number of payment platform experts for products in retail stores, inviting applications to be a part of “something big.”