Abstract

"Elastic Infrastructure: Payments and Credit in Twentieth Century Global Correspondent Banking"

Jamieson Gordon Myles, University of Oxford (jamieson.myles@unige.ch)

The growing involvement of fintech firms in the international payment system (IPS) has brought attention to the oligopolistic group of global correspondent banks providing this public-interest infrastructure (Brandl and Dieterich 2021). However, the limited historical studies of correspondent bank networks (composed of bilateral nostro/vostro accounts held between banks) means little is known about the relationship between correspondent banks and the IPS or how it has changed over time. This paper asks what the practice of global correspondent banking might reveal about the nature of the IPS. To that end, the paper draws on the archives of major European commercial banks and mobilises the “money view” notion that payment systems are characterised by a dynamic tension between elasticity and discipline (e.g. Mehrling 2015). The paper argues that, although the ITC revolution enabled today’s conceptual—and seemingly practical—separation between the payment system’s clearing/settlement and credit dimensions, global correspondent banks have consistently addressed them as part of the same package throughout the twentieth century. This congruence of settlement and credit is reflected in their organisational structure, in correspondent relationship managers’ constant preoccupation with credit facilities, and in bankers’ own description of the payment system. Thus, only by broadening the prevailing concept of the IPS can we hope to grasp the historical dynamics of the interbank networks that underpin it. The broader implication is that, for fintech to compete with global correspondent banks on an equal footing in IPS infrastructure provision, they would require equal access to key-currency central bank liquidity in order to provide a similar degree of elasticity. Given Big Tech’s vast data resources and monopolistic tendencies, efforts to “democratise” IPS infrastructure in this way could simply mean replacing bad with worse.