Digital Money in the Age of Globalization

Digital Money in the Age of Globalization

Barney Warf (University of Kansas, USA)
DOI: 10.4018/978-1-4666-9787-4.ch014

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The Emergence Of Electronic Money

The digitization of money profoundly affected the world’s capital markets, greatly reducing the costs of transmitting funds at the same time that neoliberal deregulation freed funds from the oversight of the state (Batiz and Woods, 2002). To expedite the movement of money, large firms, particularly commercial and investment banks, insurance companies, and securities firms, joined telecommunications firms to build an extensive network of fiber optics lines connecting the world’s major financial centers, particularly New York and London (Warf, 1995). Starting with the TAT-8 line in 1989, and continuing with a series of evermore powerful systems across the Atlantic and Pacific Oceans, fiber optics is the mode of choice for the firms that run the world’s economy. This infrastructure emerged as the backbone of the global financial system and played a powerful role in the growth of the internet. Using fiber optics, which greatly exceeded the capacity of competing systems such as satellites, financial institutions designed electronic funds transfer systems (EFTS) to shift funds effortlessly across borders, take advantage of differences in interest rates, speculate on exchange rate fluctuations, and avoid political upheaval.

Key Terms in this Chapter

Electronic Funds Transfer Systems: Means of moving money digitally either among financial institutions and governments or to individuals and households.

Foreign Exchange: Instruments of payment among different national currencies.

Real Time Gross Settlement System: Electronic systems for streamlining transactions among large financial institutions, typically governments and networks of banks.

Offshore Financial Centers: Financial institution located outside of the country of depositors, typically in tax havens on the periphery of the global banking system.

Capital Markets: Supply and demand of debt and equity securities, commodities, and other financial instruments.

Bretton-Woods System: International system of regulation erected by the U.S. that lasted from 1945 to 1973, designed to provide order to post-WWII financial markets.

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