The Integration of Financial Infrastructures in Europe: Towards a Sociological Theory of Money

In this paper, I study the difficulties of setting up efficient pan-European financial infrastructures after the introduction of the euro. I show that centralisation is necessary for a currency like the euro to function smoothly, but extremely difficult to achieve. This has partly to do with the political difficulties of European harmonisation and integration in general, but can also be explained by the ‘nature’ of money, which can be traced all the way to the technical details of the new pan-European systems and the role of the European Central Bank in them. Thus, the project proposes an alternative to existing understandings of the euro (and money in general) focused on money as a neutral medium of exchange and/or a matter of monetary policy. Sociological accounts of modern money are mostly theoretical or quantitative. This paper proposes a qualitative inquiry of an important aspect of the euro: its role in payment and settlement between financial institutions. The research centres on the ECB project for a pan-European securities settlement platform Target2-Securities (T2S) conceived in 2006, following the failure of market-driven solutions, and presently in its implementation face (2015-2018). The project is considered an important step towards a harmonised and integrated capital market in the EU. The paper is based on about 60 qualitative interviews with key stakeholders in central banks, financial infrastructure providers and banks, as well as institutions in the periphery of the decision-making process (notably smaller banks). Interviews have been conducted at the ECB, the originator of the project, in France and Germany, the two major participant countries, and finally in the Belgium and in Denmark, the only non-euro country to join T2S. T2S 'in-sources' securities settlement from domestic and private infrastructure providers to a single ECB platform. By the time of its conception, the aim was to provide cheap, safe and efficient securities settlement for the whole of the eurozone in central bank money with no distinction made between domestic and cross-boarder transactions. But with increasing project costs and the financial crisis and subsequent regulation, focus moved to the provision of 'collateral liquidity'. By being able to pool and mobilise collateral from across the eurozone, big banks could relieve themselves from some of the constraints of increased capital and collateralisation requirements. Drawing on Social Studies of Finance (SSF) and sociology of money literatures, the main focus of the paper is on the practical challenges, conflicts and solutions involved in the infrastructure integration necessary for the euro to efficiently fulfil its functions (means of payment, medium of exchange, store of value, unit of account) in financial markets. By thus zooming in on the social practice of payments and securities settlements in financial markets, this paper proposes a renewed interest in structuralism (Lévi-Strauss) to conceptualise money sociologically in complement to the network-focused SSF literature. A structuralist approach consists in mapping intrinsic contradictions in the money phenomenon and to further explore how these contradictory relations are handled as problematic and contested boundaries in practice. Examples of oppositions thus structuring monetary integration in the present case are: commodity-money versus credit-money, cash versus collateral, competition versus centralisation, markets versus states, and technology versus legality. Rather than a simple ‘effect’ of money, institutions or infrastructures on European societies, the paper thus points to a more complex and open-ended understanding of the way monetary and financial issues structure political debates as well as institutional development. Whereas common intuition as well as certain established theories about money and central banking take money simply to be an asset, a possession pre-existing exchange, this paper shows how its existence is fundamentally ambiguous along the identified dimensions, and how a profound understanding of these 'structuring contradictions' provides a much needed fundament for the sociology of money in general and of European monetary integration in particular. One example of this is a T2S functionality which allows banks to finance their purchases of securities by collateralizing them directly with the central bank so as to obtain the intraday credit needed to pay for them in the first place (‘autocollateralisation on flow’). The centralised, integrated and hierarchical structure of T2S thus allows money and securities to approach each other to the extent where the differences between them momentarily disappear. On the one hand, the centralised and consolidated environment of purely ‘scriptual’ money and securities, existing only as balance sheet entries, thus corresponds to the ideal known from neoclassical theory. In such a system, classical notions such as 'the quantity of money' lose their meaning because money is created and destroyed automatically with transactions. On the other, such Walrasian purity is an effect at the summit of a vast social organisation with its political and institutional history, rather than a founding condition of economic life. From this perspective, concepts often presented as mutually exclusive – states and markets; competition and centralisation; credit and commodities – should instead be conceived of as intrinsically contradictory relationships facing practitioners, as dimensions both of monetary systems and of social conflict around the integration of such systems. Inferences from the analysis and theoretical foundations are suggested as to how they may inform broader analyses of financial markets, the eurocrisis etc.