FINANCIAL RESILIENCE

“What we mean by ‘our economic system’ is an economic system characterised by private property (private initiative), by production for a market, and by the phenomenon of credit, this phenomenon being the differentia specifica distinguishing the ‘capitalist’ system from other species, historical or possible, of the larger genus defined by the two first characteristics.” - Joseph Schumpeter (1928)

 

 

The “Financial Resilience Lab” (FRL) at the Global Forum pursues research on the evolutionary aspects of the monetary-financial system. Specific research questions are framed around the concept of ‘financial resilience’ within the broader context of a political economy approach to money and finance. We examine how the traditional foci of political economy—the relationships between markets, institutions and the state—give rise to the concurrent processes of urbanization and financialization which render such a system at once resilient and unstable. At the core of our research thus stands the notion that capitalism is essentially a financial system in which money and credit are not ‘neutral’.

 

Consequently, the particular dynamic attributes of a capitalist economy evolve around the (spatially highly uneven) impact of money, credit and banking upon system behavior—both in terms of an institutional view of resilience (i.e. the resilience of specific monetary arrangements, financial intermediaries, and financial markets) and in terms of a functional view of resilience (i.e.  the resilience of rates of profit or funding and asset flows). In the broadest sense, financial resilience can thus be considered a property of the process of globalized urbanization in an era of financialized capitalism. It provides a framework through which to theorize the spatially uneven consequences of monetary-financial governance, (dis)equilibrium and regulation.

Our research topics include, but are not limited to:

  • The political economy of monetary innovation and reform (“From fintech to central bank digital currency”)
  • The role of financialization in the process of urbanization (“money and metropolis”)
  • The spatial consequences of financial regulation (“regulatory-spatial dialectic”)
  • The treatment of money and credit in the history of spatial economics (“spatial non-neutrality of money”)

selected research projects:

  • “Disruption, Dislocation or Delusion? Fintech and the Digital Macrofoundations of the Next Global Financial Order” (David Bieri and Giselle Datz)

    ABSTRACT

    In the past decade, financial innovations such as electronic money and blockchain technology have elicited the narrative of “disruption” in financial services and economic governance. In this paper, we explore how fintech—the technology-enabled innovation in financial services—transforms the way in which money-flows are structured and managed on a global basis. While it is not evident a priori that fintech will fundamentally change the essence of intermediation in the global financial system or the required economic functions, we identify some key mechanisms involved in the transmission of global liquidity. Paying particular attention to the post-crisis nature of international monetary relations, we use the “financial trilemma”—the fundamental incompatibility of national sovereignty with financial stability, financial integration and national financial policies—as our analytical lens to probe the digital disruption metaphor for financial industry incumbents, competitors and regulators. We argue that along with newcomer’s technological comparative advantages, change has been driven by both competition among national regulators and global regulatory and supervisory co-operation on fintech (e.g. Basel Committee on Banking Supervision 2017; Financial Stability Board 2017). Our analysis contributes to the literature on comparative institutionalism in three ways. First, it explains institutional change within a market-based financial system, rather than change among archetypical models (from market-based to bank-based systems). This is particularly relevant given that this original differentiation is being increasingly challenged by accounts of blurred boundaries between the two types of financial systems. Second, we emphasize regulatory ambiguity as an endogenous mechanism for global institutional change. Finally, our focus on competitive pressures brought about by innovative newcomers brings “creative destruction” to comparative institutionalism. The result, in sum, is an account of financial system macro transformations via creative displacement.

  • “Regulatory Networks in the US Blockchain Industry” (David Bieri, Simone Franzi and Dan Simundza)

    ABSTRACT

    This paper analyzes the network structure of regulators of the blockchain fintech industry in the United States. Different blockchain technology applications are emerging in various sectors; prominent is the case of cryptocurrencies whose prices are in constant fluctuation. One of the innovative features of the blockchain is that the technology is both a process and infrastructure, and as a consequence of this ambiguity, there is evidence of regulatory arbitrage among companies. In this context, there is a quest for regulation of the technology from different sides. The big question we are trying to tackle is thus: who is going to regulate fintech? We examine existing blockchain companies and their regulators through a sample of companies which are members of two prominent blockchain consortia—R3 and Hyperledger. The R3 consortium is composed entirely of large banking and financial services companies, while Hyperledger is a more heterogeneous conglomerate of firms. This sample allows us to investigate the regulatory landscape of the fintech blockchain industry inside formal partnerships. We use regulatory information from company-level data for members of each of the consortia to perform a network analysis, extending the layered interbank lending model of Craig and von Peter (2014). We classify the various entities in the US federal regulatory ecosystem in to five categories, i.e. federal regulators, federal reserve system, self-regulatory agencies, state regulators, and other miscellaneous regulators. Our network of regulators is compact and dense, with federal regulators and the federal reserve system’s actors exhibiting a high degree of connectivity. The results of the econometric model show the regulators are tiered in a core-periphery structure, with the core composed as we might expect by federal regulators, the federal reserve, and, surprisingly, also some state and private regulators at the core.

     

  • “Monetary Governance between ‘Trust’ and ‘Authority’: The Swiss Sovereign Money Initiative in Light of the Simmel-Keynes Divide” (David Bieri and Marion Repetti)

    ABSTRACT

    Monetary theory traditionally distinguishes between two separate approaches to money, popularized by Schumpeter’s chartalism-metallism dual that classifies Georg Simmel, along with Marx and Menger, as a “metallist” and John Maynard Keynes as a “chartalist”. Four decades ago, Frankel (1977) examined the philosophical foundations of these two contrasting views of money, recasting them as a conflict of trust, the motivating principle in metalism, and central authority, the essence of chartalism. Today, new political debates have reactivated the trust-authority dual in terms of precise role that this assigns to governments with regard to the regulation of money. This “return of the question of money” takes part as a larger post-crisis discussion of the Simmel-Keynes divide in the philosophy of money, providing an important background against which to examine the most pressing monetary reform questions of our time. In this paper, we examine the “Swiss Sovereign Money Initiative” (SSMI) which proposes a constitutional monetary reform on the basis of the so-called Chicago Plan—a proposal for monetary reform that was advanced by a number of leading U.S. economists at the height of the Great Depression, separating the monetary and credit functions of the banking system via a 100% reserve backing for deposits. Beyond its technical goals, the proponents of SSMI emphasize the project’s normative dimensions, in particular its societal ambitions that would render the monetary-financial system more “equitable” and “democratic”. A central objective of our paper is to analyze these monetary governance aspects of the SSMI against the Simmel-Keynes divide. We use discourse analysis based on a sociological perspective to trace how experts consider the role that money should play in a context of “fair social relations”. In fact, we demonstrate that through their discourses, the experts’ views of an ideal policy of money is related to their definitions of social justice.

  • “August Lösch and the Invention of Modern Spatial Economics” (David Bieri)

    ABSTRACT

    August Lösch’s Räumliche Ordnung der Wirtschaft (1940/44) marks the beginning of modern spatial economics, representing “the very pinnacle of a century of theorizing about the economic problems of space.” (Blaug, 1992). This project traces the intellectual origins of Lösch’s grand oeuvre, including the influences of his teachers, Walter Eucken, Arthur Spiethoff, and Joseph Schumpeter. Viewed in this light, Lösch’s project of emerges as one of—in modern parlance—empirical macroeconomics (in particular, business cycle analysis in space) rather than its conventional reception as the microeconomics of location choice; above all, his work was fueled by an ambition to complete “Ohlin’s dream” with regard to the integration of trade theory and international macro-finance via the lens of the transfer problem.

  • “Urban Financial Resilience: Theory, Measurement, and Application” (David Bieri and Dan Simundza)

    ABSTRACT

    In the decade since the Great Financial Crisis, the financial conditions for U.S. municipalities remain precarious and, in many instances, far away from their long-term trends. From the urgency of municipal bankruptcies in Detroit and Stockton to concerns over long-term financial stability in Chicago or New York, there remains significant amount of heterogeneity in the nature of post-crisis financial stress among U.S. cities. In this project, we develop theoretical and empirical aspects of the concept of “urban financial resilience” in two specific ways. First, we theorize, measure and apply both micro and macro notions of urban financial resilience for U.S. cities by engaging with a set of well-established metrics based on a long tradition that uses financial ratios as a tool of financial statement analysis. Second, we aim to provide insights into the policy-relevant dynamics of a municipality’s financial resilience. Specifically, we study how the stylized facts of urban financial resilience relate to a promising new policy framework for urban policy analysis, the so-called Fiscal Policy Space (FPS), a unique collection of financial, economic, and political parameters under which U.S. cities operate. We use a novel implementation of agent-based modeling (ABM) to examine the mechanisms by which financial resilience emerges for a broad set of (fiscal) policy scenarios.

 

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