American Banker (7/24/2012)
You should be able to move your money as fast as you can make it. But the banking system today works about as speedily as the Post Office.
Three decades ago you would wait anxiously by your mailbox for important correspondence. Today you can email, fax, text, IM, Skype, Vox, FaceTime, call or poke instantly. Three decades ago you might have even placed trading orders by mail. Today, high frequency trading has come to dominate finance. Professional market makers operate at lags where the speed of light is a legitimate annoyance.
The only things that haven't sped up much in that span are government functions. There are about as many post offices today as there were 30 years ago – still more USPS locations than all McDonald's, Burger King and Wendy's restaurants combined. It should come as no surprise that they are now threatening to default unless we pony up more money to support their forced monopoly.
What about banking, which for a century has been a kind of public-private hybrid? It has seen delightful innovation in some sectors, particularly derivative securities, drive-through ATMs and automatic remote check deposits through iPhones. On the other hand, banks have also gotten more bailouts than the post office would ever have the temerity to ask for.
So are banks today as quasi-governmental as the mail or simply as regulated as any other large business sector?
Here's a simple test: try some basic banking tasks, such as opening an account, depositing funds, or taking out a loan. Then offer to pay to make it go faster. When speed is not an option at any price, you're probably dealing with a branch of government.
With anti-money laundering rules, opening an account can be a hassle of bureaucratic proportions. Know-your-customer rules force bankers to shake you down and try to find out what you pay in rent, earn in income, who you work for and where and other totally unnecessary intrusions.
Try getting a mortgage or any other loan in less than a month. A month!
And despite all the astronomical increases in communication and network quality and speed, go ahead and deposit a check for a few thousand dollars and see when that money becomes available. That glacial pace hasn't changed much in half a century.
Checks still go through all sorts of regulatory and bureaucratic hurdles before you can take the cash. Fund availability needs to be verified. The Federal Reserve occasionally needs to be involved. Some transactions need to be reported to the U.S. Treasury. Virtually anything over $10,000 must be separately reported and tracked by the government. Anything that anybody on earth could conceivably label “suspicious” must be separately reported. And that's the fast track compared to what happens if there's an international party involved.
There are certainly ways around the bureaucracy, just like there are ways around Internet censorship. Digital currencies such as Bitcoin transmit value instantaneously. High frequency banking is possible.
Regulators might argue that HFB could aid everybody, including criminals. Well, so can oxygen. That doesn't necessarily mean it ought to be regulated. And it certainly doesn't mean it ought to be forbidden.
You should be able to do with your money anything that you could otherwise do with your time. That's the essence of liberty and property rights. It's basically the definition of money: someone gave you something in exchange for your time, and you'd like to exchange that for something else. If Federal Reserve notes do not fulfill that function, then perhaps their enforced monopoly on their brand of currency needs to be scrapped.
With competition in currency and clearing and monetary transfers, we could have high-frequency, private, anonymous, secure banking. Bankers have proven time and again that they can be innovative when regulations do not interfere; let's unleash that same creativity and bring basic banking into the 21st century. Such freedom of exchange would lead to unimaginable advances in technology and standards of living, just as cell phones and fax machines have. The only obstacles are the entrenched interests of existing large financial institutions, central banks, and regulatory authorities. Why are we being forced to pay the price to keep such relics around?
For those who fear that allowing competition with government services will destroy the earth, let's start small: first, strip the USPS of all public funding and allow unmitigated postal competition. You'll soon find your mail gets where it needs to be faster and cheaper than before. Then, we can go ahead and confidently allow other currencies, including digital high-frequency ones, to compete with the government's offering.
You should be able to move your money as fast as you can make it.
Maybe in another decade or two we will laughingly recall those quaint old days when the markets for mail and money used to be cornered by the government. What a racket that was!
Philip Maymin is an assistant professor of finance and risk engineering at NYU-Polytechnic Institute.