This article is part of the b2o: an online journal Special Issue “The Gordian Knot of Finance”.
Teleological Limits: Value Creation on Financial Platforms
Janet Roitman
There is a widespread but unspoken, bedrock assumption: finance is always already effective. It therefore seems, from the durable perspective of that foundational premise, impossible to untie the Gordian knot of finance.[1] One response to the challenge of the Gordian knot is to forgo attempts to loosen it and instead find the fissures in the rope – the fault-lines of change. The fault-line approach admits to the profound structuring effects of financial practices, financial devices, and financial institutions. But it raises the question of the very notion of “financial power.”
To address that question of power, we need to consider the following questions: What are the limits of finance? How are specific financial practices expressed in heterogeneous terms? How are they instantiated in diverse ways – and thereby create fault-lines, generating the grounds for what Arjun Appadurai (1986) called paths and diversions?
The Limits of Finance
While establishing the limits to finance might be a metaphysical endeavor insofar as it seems to imply that we can define the essence of finance, some scholars have documented the limits to processes of financialization, or the limits to efforts to extend financial institutions, services, and products both geographically and to new consumer markets (Christophers 2015; Davis and Walsh 2017; Mader 2018, Engelen 2008; Bernards 2019a, 2019b). These limits are both empirical and analytical.
First, as Brett Christophers has argued, the intensification of financialization in an increasing number of domains (i.e. the financialization of “everyday life”) is not inexorable. Attempts to generate financial assets have resulted in particular responses. For instance, Christophers (2010 and 2015: 194-5) examines limits to the financialization of land – perhaps the Ur-asset – which is instantiated through recourse to cash economies and other exit options. And, while land might be the asset of original capitalist sin, we can observe something similar more recently established asset classes, based on data sets, for instance, which one might deem the forefront of capitalist transgression. In those instances, as well, we see the limits: in Sub-Saharan Africa, for example, although the implementation of national digital identities and thereby automated taxation would seem to close the door to exit options, it has incited an overwhelming return to the anonymity of cash (and cryptocurrencies).
Second, there are analytical limits to finance, which is not a totalizing institution nor expressed in a seamless logic. Similarly, financialization is not a totalizing, seamless practice. This doesn’t mean that it is possible to locate the “outside” of finance; that would assume a bird’s-eye view – a God perspective or absolute truth vision – from which to do that. What we encounter here is precisely the problem of immanence: financial objects and financial practices are constantly produced as constituent elements of socio-technical networks, which we can observe in terms of particular epistemologies, but not know as ontological entities (cf. Latour 2003).
But, even in spite of the empirical and analytical limits to finance noted above, we nonetheless typically posit finance as a totalizing concept and assume its teleology – that it achieves its endpoint, that it ties and always tightens into a Gordian knot.
However – and this is where we get to the knot’s internal fissures -, finance signifies heterogeneous terrain. When we refer to finance, are we referring to investment banks, asset management firms, central banks, pension funds, stock markets, bond markets, capital markets, consumer credit markets, sovereign wealth funds? When we refer to finance, are we referring to the operations of finance, which includes pricing, trading, hedging, intermediation, accounting, computation, modeling, automation, etcetera? Or are we referring to the practice of finance – also an expansive terrain, since we’d have to account for the myriad instantiations of financial practice in the world today (China, India, Singapore, United Arab Emirates, South Africa).
Despite this heterogeneity and these open-ended questions, we seem to assume that “finance” is a unified system and that it has a particular unidirectional logic which is always already effective. It seems that – while we evidently took heed of the critique of the teleology of developmentalist thinking – articulated in the 1980s, but harking back to the critique of 1950s modernization theory – we reproduce developmentalist logic with regard to finance and financialization.
Kinks and Fissures in the Gordian Knot
To illustrate my point about the limits to finance and the political significance of its expression in specific financial practices expressed in heterogeneous terms, I’ll walk through a scenario. And I’ll do so with reference to a place considered the most subjugated by global finance: Sub-Saharan Africa (SSA). My illustration refers to infrastructures of emergent financial technology (fintech) platforms across the continent.
Financial platforms are perhaps best defined as infrastructures for the extension of financial technologies. Fintech platforms are the basis for modes of intermediation in commercial banking and retail payments through non-bank payment rails – that is, through financial entities that don’t have banking licenses. And they’re increasingly – if not gingerly – becoming a means to manage the historical subjugation of non-convertible currencies.
How does that work? In SSA, payments and transfers between different African states are international operations involving international currency exchanges. This is because African currencies are non-convertible: they are “soft” currencies, not openly traded on the forex market. Due to the non-convertibility constraint, transfers both into and across Africa are the most expensive in the world, especially when they transmit through legacy systems like commercial banks or Western Union. On average, the cost of an international transfer of $200 is 7.9 %, compared to the world average of 6.9%. And, amazingly, the costliest transfers are between African neighbors. For instance, a $200 remittance transfer from Tanzania to Uganda costs 39.1% (World Bank/KNOMAD 2023: 43). Because most cross-border payments and transfers are international currency operations, settlement involves buying and selling dollars and clearing through non-African banks. In 2017, only about 12% of intra-African payments were cleared within the continent. This obligation to route settlement through overseas banks adds an estimated $5 billion a year to the cost of intra-African currency transactions (Wellisz 2022: 47). When we add to this the fact that African sovereigns are constrained to the Eurobond markets for debt issuance (see Gabor 2021), we can say that this schematic description is evidence of the structural power of global finance.
The combination of US dollar hegemony and currency hierarchy, along with the abiding centrality of neocolonial banking institutions that service the commodities sectors (oil, mining) but not retail banking, creates a tight Gordian knot that speaks to the problem of financial sovereignty in contemporary currency regimes. And since it’s extremely unlikely that global banking institutions will adopt the South African rand or the Nigerian naira as a reserve currency, it’s very likely that resistance can only come from within, per Michel Foucault (1978).
It’s worth digressing to note that while Foucault didn’t focus on cutting the Gordian Knot, he did lament that we “still have not cut off the king’s head,” a reference to our monolithic and monological conception of power. We might wonder whether such a conception of power as sovereignty is perhaps reproduced in our approaches to finance either as an always already effective teleology; or, in the terms that have dominated recent debates in political economy, as an effective infrastructural power. The latter approach illustrates – convincingly – the effects of infrastructures that participate in processes of politico-economic subordination, such as what I just described with regard to currency subordination in SSA (Braun 2018, Braun and Gabor 2020, Rethel 2010, Hardie 2012, amongst others). This work maintains that infrastructural power translates into the power of financial agents. Though there are real merits to this research, the conclusion is somewhat tautological: by virtue of infrastructural power, agents exercise power. But, more importantly, those living in SSA (consumers, but also financial sector actors) focus on the extent to which there are fault-lines in the operations of infrastructures, which is a worthy view.
New Modes of Intermediation: Mobile Money and the Float
One sector which has exhibited the potential to generate fault lines is the non-bank payments and mobile money sector. Mobile money sounds like some kind of monopoly money, but the value of transactions in the global mobile money sector for 2022 totaled a massive 1.26 trillion USD, about half the GDP of France. In SSA, mobile money platforms and non-bank payment service providers are the overwhelming services of choice for payments and money transfer operations. This is true for both international and intra-African transactions.
Again, the scale of this should not be underestimated: in 2022, the African continent hosted 763 million registered mobile money accounts (of the 1.6 billion global accounts). There were 218 million monthly active accounts (more than half the global amount); and the continent represented $32 billion of the global $1.26 trillion transaction value (GSMA 2023a). Sub-Saharan Africa is the “global epicentre of mobile money” (GSMA 2023b), which involves peer-to-peer and business-to-business transactions as well as $1.3 billion in international remittances processed per month for that same year.
Mobile money is a financial service provided by the mobile network operators/mobile money issuers. It’s a money transfer tool. Because mobile network operators don’t have banking licenses and hence can’t take deposits, they create subsidiaries, which are licensed nonbank entities. Through these nonbank subsidiaries, the telecoms establish a trust account with a partner bank, where the fiat money equivalent to the e-value of customer base digital wallets is held. This is ‘the float,’ which is one of the primary forms of value generated by the mobile money financial platform. It’s a liquidity pool generated by the e-money/fiat money interface. And it’s significant: the mobile money transaction float value in Ghana alone in April 2023 totaled over $1 billion (Bank of Ghana 2024: 13).
In commercial banking, regulations stipulate that floats be held as liquid assets, or in accounts that are classified as current accounts, typically earning 0% interest. In the fintech sector, this has been a blind spot. In the US and Europe, fintech and big tech firms pay customers zero interest to digital wallets and yet collect interest on the float held by banks (Carstens 2019). In SSA, there has been conflict over the attribution of interest accrued to these funds held in commercial bank custodian accts, which involves debate over the status of digital wallet accounts. Regulations have been implemented that prescribe profit-sharing arrangements, most of which entail returning interest to digital wallet holders.
This contestation and consequent redistribution indicates how digital platforms represent new modes of intermediation that tighten the Gordian knot of finance through the extension of financial institutions and associated markets and yet generate fault lines, which fray the strands of that knot (for elaboration, cf. Roitman forthcoming). Apart from minor instances of revenue sharing, liquidity pools are also increasingly used for treasury and foreign currency management. And this practice is increasingly seen as a means to circumvent – if not eliminate – the costs of soft-currency subjugation.
To do this, the liquidity pool generated by the non bank financial service providers (the float) is used to solve nonconvertible currency and liquidity constraints. Increasing numbers of pan-African payments companies enable interoperable cross-border and domestic digital payments. Their services include payments and settlement, as well as foreign exchange and treasury management across multiple countries and currencies. These firms are effective alternatives to the international correspondent banking system, which is costly and is a vestige of colonial banking and currency regimes.
These platforms are cognizant and often explicit about the political stakes of their services. At a digital finance sector industry conference held in 2022, the CEO of “ABC Finance” [pseudonym] underscored a central problem: no one will hold African currency in the national banking systems across the continent. Because the vast majority of government and corporate bonds are denominated in dollars, African central banks are mandated to support the value of their respective currencies, which means rationing dollars and other hard currencies. ABC’s response is to become the largest non-bank foreign exchange broker in Africa: it buys and sells currencies using its own balance sheet. In other words, it sells balance sheet liquidity and offers wholesale foreign exchange (sometimes using crypto stablecoins). Hence the CEO characterizes ABC’s financial platform as a means to “deconnect Africa from the US dollar.”
That wild aspiration aside, we have seen a recent, though very modest, decrease in the share of US currency usage in payments clearing, which dropped from 50% in 2013 to 45% in 2017. During the same time, the use of the British pound decreased from 6.2% to 4.6%. These declines result from the increased usage of regional currencies (e.g. West African franc) and the South African rand (SWIFT 2018). [Note that figures reported by SWIFT don’t account for the use of cryptocurrencies]. We can also note an increase in intra-African trade that relies on regional payment platforms, facilitated by emerging solutions to real-time multi-currency clearing across the continent. A key element in the advancement of this trend is the development of payment systems denominated in local currencies. Thus, for example, existing regional payment systems – such as the East African Payments System (EAPS), the Southern African Development Community’s Real Time Gross Settlement System (SADC-RTGS), and STAR-UEMOA, the Automated Transfer and Settlement System led out by the Central Bank of West African States – are currently formulating plans to operationalize interconnections between their organizations with the aim to establish a pan-African settlement platform.
Importantly, these aren’t just private market-based ventures. In 2021, the Pan-African Payment & Settlement System (PAPSS) was established with the explicit mission to enhance financial sovereignty. PAPSS is a cross-border, financial market infrastructure that enables real-time gross settlement through participating central banks. It aims to reduce the need for banks to source hard currencies to support transactions between two African parties. It serves commercial banks, payment service providers, and fintech firms; and it provides an alternative to the high-cost transactions that transpire through correspondent banks located outside of the continent. Also, as an aside, it is devised to generate the conditions for local currency lending instead of dollar financing, or the development of local currency bond markets (see Gabor 2021). Ultimately PAPSS displaces the role of non-African intermediaries, such as the European-based SWIFT system. In that sense, it’s a concrete response to hard currency subjugation and an effort to “free foreign exchange in Africa” (Wellisz 2022).
***
Is the freeing of foreign exchange in African transpiring through processes of financialization? Yes. But these are equally concrete practices that serve to loosen the Gordian Knot, or to generate fault lines in existing financial infrastructures. In other words, what I’ve described herein could be subsumed into the “logics of finance” arguments – the extension of the tentacles of financial institutions into the Dark Continent. But Africans, like the Chinese or those living on the Indian subcontinent and in the Middle East, have always had finance. In Sub-Saharan Africa, finance existed from the days of the great Ashanti gold empire through to today’s interoperable mobile money platforms. In that sense, finance hasn’t “come to” Africa. And, like everywhere, those living on the continent are subjected to financial practices and institutions as much as they create kinks in the Gordian knot through appropriation and transgression.
Janet Roitman is a professor at RMIT University. She is founder/director of the Platform Economies Research Network (PERN) and an Associate Investigator with ARC Centre of Excellence for Automated Decision-making and Society (ADM+S). Her research focuses on digital financial technologies and emergent forms of value. She is the author of Fiscal Disobedience: An Anthropology of Economic Regulation in Central Africa (Princeton University Press) and Anti-Crisis (Duke University Press). She sits on the editorial boards of The Journal of Cultural Economy, Finance & Society, Platforms & Society, and Cultural Anthropology. Prior to joining RMIT, Janet was a University Professor at The New School in New York. Her research has received support from the Ford Foundation, The MacArthur Foundation, The US Institute of Peace, Agence française du developpement, The American Council of Learned Societies, The Institute for Public Knowledge, and The National Science Foundation.
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[1] This contribution is based on research supported by the US National Science Foundation. It also benefitted from discussions at the “Cutting the Gordian Knot of Finance” Symposium, University of Sydney, 4-5 April 2024.
