Tuesday, February 20, 2007

Weapons of Economic Warfare II

Weapons of Economic Warfare II (Targeting the Banking System)

By disabling the banking system an economy can be largely handicapped. There are methods with which an unfriendly power may be able to effectively attack the banking system of a country. The attack may come through one of two spheres, electronic or public opinion. An electronic attack has already received a lot of attention. An increasing portion of modern banking is done via computer. Even cheque clearing is now done via computers. The majority of a bank’s record keeping is done electronically. There are a number of different methods in which an attack on these records could bring down the system. The simplest attack would be to simply destroy the bank’s records of deposits and loans. A slightly different electronic attack would simply modify a portion of the records. This would likely cause banks to shut down while the records are either recovered from backup or verified. How well would a population like Canada’s do with no access to their banking system. Think about how much cash you have on hand right now. How long could you survive with just that amount of cash? If the banking system was sufficiently shut down for longer than that, what would you do? Think of the ensuing panic that would result from the inaccessibility of cash. This would definitely do some serious damage to the economy of the nation in question. In this strategy the objective would not be profit but chaos.

The other method of assaulting a banking structure would be attempt to initiate a bank run. Most countries now use some form of fractional reserve banking. This means that the majority of the deposits in a bank are not held within the bank. Instead most of these deposits are used to finance loans. If you wanted to make a substantial withdraw from your accounts, the bank would give you money that was deposited by somebody else. This normally isn’t a problem as its unlike that a large number of people would all decide to make substantial withdraws at the same time. If for some reason a large number of people all decide to make large withdraws at the same time a bank may not be able to satisfy the demands of its clientele and thus shut down. The modern system of electronic banking and direct electronic transactions (interac) actually limit the possibility of a bank run. In this system electronic markers are transferred, not physical markers of value. The system is protected from a bank run by the simple fact that the bank can create electronic markers on demand. The scarcity of these markers is limited by the banks’ own actions.

Banks defenses against attacks have currently focused on actions by individuals or groups of individuals attempting to make profits. These defenses may also reasonable against a group attempting economic warfare. The failing of banks may be in a combination of an electronic attack and a public opinion attack, or in the fact that an electronic attack may trigger a more traditional bank run. Maybe all banks should be equipped with a Jimmy Stewart impersonator.

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