Geography Reference
In-Depth Information
4.2 Electronic Funds Transfer Systems
Few industries have been more profoundly reshaped by the global fiber optic
network than finance. Electronic funds transfer systems (EFTS) comprise the
architecture of global capital markets, foreign exchange markets, and transactions
payments, and form part of the profoundly important shift into digital money that
began in the late 20th century (Schiller
1999
). Aided by a massive worldwide
network of fiber optics, international banks and speculators can shift significant
sums around the world at a moment's notice, wreaking havoc with national
monetary controls. As a result, the mounting velocity of global capital has
accelerated to unprecedented speeds: freed from many technological and political
barriers to movement, capital has become not merely mobile, but hypermobile.
EFTS, therefore, are not simply economic in nature, but have important public
policy ramifications (Solomon
1997b
).
Since their first signs of existence in the 1970s, EFTS have spawned a copious
literature, often utopian and technologically determinist in nature. By fomenting a
''paperless economy,'' EFTS, which include business-to-consumer and business-
to-business transactions, were assured to provide relief from growing mountains of
paper transactions, reduce transactions costs, increase the velocity of money,
improve capital market efficiency, and generate economies of scale in finance
(Gallagher
1987
; Kirkman
1987
). The reality has been more complex.
Prior to the rise of EFTS, global finance was a relatively placid world. Under
the Bretton-Woods system from 1947 to 1973, there were few exchange rate
fluctuations; most currencies were pegged to the U.S. dollar, which was, in turn,
was pegged to gold, at $35/ounce. Currency appreciations or depreciations
reflected government fiscal and monetary policies within relatively nationally
contained financial markets in which central bank intervention was effective.
Trade balances and foreign exchange markets were strongly connected: rising
imports caused a currency to decline in value as domestic buyers needed more
foreign currency to finance purchases. Rising exports had the opposite effect,
raising the price of domestic currencies on the international market. Currency
fluctuations figured prominently in rectifying trade imbalances. The largely
unregulated Euro market was also important to this system. The system ended
abruptly with the U.S. abandonment of the gold standard in 1971 and the collapse
of the Bretton-Woods system in 1973. Hereafter, supply and demand dictated the
value of a state's currency. Soon currency exchange became the world's largest
industry by volume: roughly $4 trillion in electronic funds crossed national borders
each day in 2010, orders of magnitude more than the total value of international
trade in goods.
Capital markets worldwide were profoundly affected by the digital revolution,
which eliminated transactions and transmissions costs for the movement of capital
much in the same way that deregulation and the abolition of capital controls
decreased regulatory barriers (Batiz and Woods
2002
; Solomon
1997a
). Banks,
insurance companies, and securities firms were at the forefront of the construction
