Miles Kellerman writes:

The global financial system is a colossal factory containing an endless web of information assembly lines. Every time you tap your card on a payment terminal, whether it’s for a coffee on the way to work or a new vacuum cleaner, you are sending a new informational signal to that factory. Like raw material, that signal is then loaded on a conveyor belt where it is checked and modified by your bank, the seller’s bank, a payment processor, card network, and other intermediaries as it proceeds. The assembly line may be relatively short for cups of coffee. For more complicated purchases, however, like mortgages and stocks, the transactional chain can become remarkably complex.

But not all transactions take place in this factory. There are, in fact, entirely separate payment networks that operate outside the confines of state-regulated information assembly lines. The Chinese refer to them as feiqian (‘flying money’). Arabic speakers prefer the term hawala, whereas the Indian diaspora operates through a practice called hundi. In English, we have developed an ominous phrase to capture these various informal networks: underground banking.

Such a phrase may evoke images of drug dealers, money launderers and corrupted officials. And, indeed, states have long been concerned about the potential utilisation of these networks for crime and terrorist financing. But numerous scholars have pushed back against this securitised narrative. The political scientist Marieke de Goede, for instance, observes that focusing on criminality in underground banking ignores the tremendous volume of illicit finance passing through the aboveground system. What’s more, the fundamental elements of underground networks – trust, speed, global reach – are precisely what ‘modern’ financial institutions aspire to.

The truth is that there is nothing inherently suspect about underground banking. It is simply another method of transferring money. So why are they controversial? The real answer is not so much about financial crime. It is, instead, about power. Underground banks represent a challenge to states’ control of the global financial system, one that undermines their capacity to surveil our each and every transaction. As a result, those states seek to eliminate informal networks by subjecting them to regulation.

It hasn’t worked. On the contrary, evidence suggests hawala, feiqian and other informal payment networks are alive and well. And, unlike the false promises of bitcoin, they remain the only alternative payment networks that offer a true escape from the information assembly lines of the state-regulated financial system. Do these networks promise a viable alternative? In a world increasingly wary of its economic dependence on the United States, could underground banks offer guidance on the art of decoupling? [Continue reading…]