The Concrete Function of the Banking System : Samir Amin's Monetary Theory of Financial Underdevelopment

Building on Samir Amin’s world monetary system theory, this paper proposes a dependency approach for understanding financial underdevelopment. This approach is examined in relation to the function of the banking system in Egypt, where financial inclusion and financial development indicators are below most other middle-income economies. The dependence theory for financial underdevelopment can be summarised as follows. First, any banking system has a passive function which is adjusting the monetary liquidity according to the needs of the economy, and an active function through creating additional money needed to facilitate future expansion of capitalist production. Second, issuing money and credit in peripheral economies is dependent on the structure of their balance of payments and their accumulation of foreign exchange reserves. Third, the concrete function of the banking system is a distributional function. This distributional function of banks in any economy facilitates the tendency of increased monopolisation of the modes of production, and in peripheral capitalism, banks provide credit to economic sectors that serve monopolised accumulation at the national and global levels. Fourth, in addition to the monetary and non-monetary factors that determine price levels, there are also transmission channels by which inflation in the centre of the capitalist world system is transferred, with a higher magnitude to the peripheral economy, as long as there is a persistent imbalance in the current account of the peripheral economy, and/or the cover of the peripheral currency is foreign exchange reserves