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Can the internet kick out the banks

Sites include . Published on March 26th, 2013. Written by Loic Cobbina.

Douglas Rushkoff is a media theorist, documentarian and author who has written a book called Present Shock: When Everything Happens Now. The arguments made on the book seems to suggest that the current banking system has no future considering how the internet is evolving and giving much more options to users. Here is the key idea he is advancing.

The continuously evolving digital technology has destroyed older business models practiced by music companies and even university curriculum. Yet it seems the banking system, for now has not really been affected by the change. There is no doubt that ATMs and online banking may cause a reduction of the bank tellers but the fact remains the central banks still have control over how money flows. Just like human beings still have to get their food from real plants, they also have to get their money from real banks.

However the future seems to suggest that even the banks will eventually lose their monopoly over currency as the digital economy evolves. That said if the banking institutions are quickly able to adapt to the new peer-to-peer financial system that is developing online, they might be able to come out on top of the game once again. At least they could find a way to work side by side with the communities they serve. With the recent financial crisis, communities have lost trust in the banks and the only way the corporate world could win that trust is to invest in these same communities.

For centuries, banks were the only financial institutions allowed to put money into the world. It was considered illegal for communities to make their own currencies. Those communities had to borrow money from the established banking system at an interest. But the system had its flaws. Because of the interest put on the borrowed money it was necessary for more money to be borrowed in order to pay for the previous loan. For the cycle to continue the financiers of the time expanded their banking businesses through colonization. But the reality is the expansion business model is not sustainable and breaks down over time. That system wouldn’t even work on the net.

In a digitally enabled marketplace, the finance corporation don’t have control over how money flows. Entrepreneurs can start a company with almost no capital and rely on peer-to-peer networks only to sell whatever they have to offer. Gone is the time when people were dreaming to have their items featured on the Wal-Mart mall. Individuals can sell directly on Etsy. The average person doesn’t even need a bank to verify money transaction, thanks to encryption and authentication routines offered by smart phones.

Alan Greenspan was right when he suggested to the Senate that the future will see private and alternative forms of money that can compete with the current central currencies. It is not just new currency systems like bitcoin that are about to change the game but also local currency exchange businesses like TimeDollar or LETs. Unlike interest-bearing currencies, these new financial models are more focused on transaction than savings. They are not meant to grow over time but rather increase the velocity at which money moves.

Possibilities offered by the new financial system are much more sustainable. Big retail stores and corporations might be replaced by things like the Maker Movement. As the communities try to reach some level of sustainability, the big banks may turn out to become the enemy because they are inherently designed to extract value through the interest rate system.

The fact remains that no matter how the local currency systems developed online are attractive in spirit, they are still localized. Those currencies can not be used in all situations. This is where the banks can hope to remain in the game. But they need to find a way to mix both.

To survive in this ever changing digital world, the banks will have to rely on both the central and local currencies. The current financial system will have to rely on business models like Socstock or SmallKnot to be able to make loans and at the same time support the communities and businesses.

This way the communities will not see the banking elites as their enemies. This will facilitate the growth of the local economy because the financial system will not be extracting as much value out of it by means of interest rate. In the long run the banks will get more business as they win back the trust of the communities.

With the internet, people are finally moving away from a “Winner takes all” approach of banking system because it is becoming obvious that once all is taken there is nothing left for the rest and business cannot grow in a situation like that. If the banks don’t adapt quickly, they will be kicked out by the different opportunities that the net has to offer.

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