With blockchain, bank cartels become bank alliances
One objection to this would be: The original point of these blockchain innovations was to disintermediate the big banks and allow new competitors to spring up. Building a closed smart-contract blockchain run by banks defeats that purpose, and makes the blockchain just a boring upgrade to existing bank technology systems.He’s right. It’s not a revolution. It’s a systems upgrade at best, and at worst a downgrade into a less efficient system which heightens cartelisation forces and introduces all sorts of new collective action and group-think problems to banking and risk management.
But there’s another objection, which is that the maximalist blockchain dream isn’t just about disintermediation. It’s also about putting everything on one blockchain, using a single universal blockchain to track identity and money and commerce and whatever else you’ve got. Shipping companies would track their cargos on the same blockchain where they tracked payments, rather than relying on banks to do the payments on their own separate blockchain. Securities transactions would settle instantly because both the securities and the currencies would live in a single system. Creating different blockchains for different purposes is just like — well, I mean, banks keep track of who has money now, and securities intermediaries keep track of who has securities, and shipping companies keep track of where their ships are. Doing all of that on separate blockchains, instead of separate databases, might be a technology upgrade (or a bunch of technology upgrades), but it is not a revolution.
Meanwhile, most of the blockchain companies involved in this venture have pivoted on their initial propositions so many times, it would be fake news to keep calling this a blockchain story.
Of course, in a world where journalists are believed to be malleable if they think they’re being offered an exclusive, should we really be surprised the corporations involved think no-one will notice that “alliance” in this use-case is just a euphemism for cartel. Not that we’re surprised this is happening. As we’ve argued for ages, cartel formation was inevitable for any of this stuff to be even vaguely succeed.
It’s worth caveating, of course, that banking has always orientated towards cartel structures with high synthetic start-up capital costs,because the good the sector ultimately provides (trust) has a zero marginal cost of production. This renders the industry uniquely vulnerable to undercutting (which, in the case of banking, equates to competitors buying off customers with other people’s money by providing loans at ridiculously cheap risk-inducing rates at the same time as over-promising returns to investors. A.k.a taking on too much risk).
But given we already have a pretty substantial banking cartel defending our interests from macro-prudential risk, do we really need to revolutionise the sector with more?
Related links:Exposing the “If we call it a blockchain, perhaps it won’t be deemed a cartel?” tactic – FT Alphaville
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