The boundary contest that never was: Shadow banking and the relation between monetary system and financial system

Abstract

What is the relation between the monetary system and the financial system? The two used to be rather clearly separated, with the realm of money-currency-banking operating under close sovereign control and financial markets being left to the private activities of financial actors. However, the rise of shadow banking has somewhat blurred the picture. Shadow banking is done with financial instruments that operate in practically money-equivalent ways but are not officially categorized as ‘monetary’. This has created some ontological ambiguity and has bred some dispute between orthodox and heterodox economists as to whether or not shadow banking instruments ‘are’ money and should be subject to monetary regulation. The article draws on the sociological concepts of (i) categorization and commensuration, (ii) boundary contest, and (iii) system to give a sociological redescription of the situation. It discusses three hypotheses. (i) The financial system has expanded its horizon of operation through processes of commensuration and has come to include activities that were formerly done in the protected monetary niche. (ii) As a consequence, there have occurred significant boundary shifts between monetary and financial turfs, which have, however, not developed into a veritable boundary contest that would pit opposing coalitions and money definitions against each other. (iii) The reason for this is the asymmetric systemness of the two sides: While the financial system is a well-developed and expansionary system, the monetary ‘system’ is not really a system but a regulatory structure that lacks systemic powers of self-assertion and self-defense.