Money Is a Number in a Database, So Why Do We Still Have Banks?

Strip away the marble and the vocabulary and look at what money actually is today. It is a number in a row in a database. When you pay, one number goes down and another goes up. No metal moves. Very little paper moves. The whole edifice of banking is a set of institutions that keep those rows and charge for doing so.

I want to ask, plainly, whether we still need them.

What Banks Are For

The traditional list is: keeping your money safe, moving it, lending it out, and creating credit. Take them in order.

Keeping it safe made sense when money was a thing that could be stolen from a drawer. A number in a database is not kept safe by a vault. It is kept safe by control over who may change the row, which is a problem of computer security and auditing, not of banking.

Moving it is, technically, a message. Two rows change. The fact that this takes days between banks, costs a percentage, and stops at weekends is not a property of the problem. It is a property of the institutions that were built around an older version of the problem.

Lending and credit creation are real functions. But notice that they do not require the institution that holds your row to be the same institution that decides who gets a loan. We have bundled the two for historical reasons, and the bundling is where most of the risk lives: the lender gambles with the depositor's rows.

The Database

Here is the proposal, stated at its simplest.

All that is needed to stop anyone cheating is tight control over the database. Preferably one database, which sounds outlandish until you notice that every central bank already runs something very like it for the banks themselves. The banks settle against a single ledger. We are simply not allowed to be on it directly.

Put every citizen on that ledger. A payment is a change of two rows, immediate and free. Your balance is your balance, not a claim on an institution that may have lent it to someone who cannot pay it back. There is nothing to run on, because there is nothing that has been lent out of your account without your knowledge.

A neutral body oversees the database and checks that its operators are not cheating: that rows change only when their owners authorise it, that the total is what it should be. This is an auditing function, and auditing a ledger is a solved problem in a way that regulating banks has never been.

The Government Objection

The obvious reply: the government creates money by adding numbers to its own account, and a single database puts that power in one place.

But that power is already in one place. It is exercised now, through the central bank and the Treasury, and the difference is only that it is exercised where you cannot see it. On a single visible ledger the government's row is visible like everyone else's. I have argued before that printing money is a tax and should be judged like one; a ledger where the printing is a visible line item is how you would make that judgement possible.

And the public would have a lever it does not have now. We could decline to accept the government's numbers as payment, other than in exchange for real services, until we can see and control its balance. That is not a fantasy of refusal. It is what any counterparty does with a debtor whose books it cannot inspect.

Why I Do Not Trust the Alternative

The reason I want the banks out is not ideological. It is that they are private, and I do not trust them with the rows.

Their record on this is not a matter of opinion. They have lent out deposits they did not have, hidden losses, needed rescue with public money, and paid themselves through the rescue. A private institution holding a ledger it can profit from altering will alter it in its own favour, and the only question is how far. I have written about why organisations behave this way regardless of the people in them, and a bank is the purest case, because the thing it is tempted to alter is the very thing it is paid to keep.

What Would Remain

Lending would remain, done by lenders who lend their own money or money explicitly entrusted to them for that purpose, and who bear their own losses. Payment would be a utility, like the pipe that brings water. Saving would be a row that nobody else may touch.

That is a smaller financial sector doing a narrower job, and I regard that as the point rather than the cost. The current sector is large because it is doing something other than keeping the rows, and the something else is what keeps going wrong.