1 Introduction

There has been a dramatic increase in attention in recent years to the echoes of colonialism, imperialism, and slavery in the contemporary global financial system. There is growing attention in recent research across geography, sociology, political economy, and development studies to how present-day global finance reproduces colonial hierarchies and dynamics. A number of researchers have examined the subordinated position of formerly colonized countries in the global financial system, highlighting the constraints this poses on development and policy space (see Koddenbrock, Reference Koddenbrock2020; Tilley, Reference Tilley2021; Alami et al., Reference Alami, Alves, Bonizzi, Kaltenbrunner, Koddenbrock, Kvangraven and Powell2023). For post-colonial governments this has often meant limited control over macroeconomic and monetary policy, and persistent challenges mobilizing resources for development. Formerly colonized countries also tend to have financial systems that are dominated by foreign banks predominantly based in former colonial powers, which often mobilize very little domestic investment to a relatively narrow range of firms and relatively affluent urban residents (see Kvangraven et al., Reference Kvangraven, Koddenbrock and Sylla2021; Akolgo, Reference Akolgo2022; Bernards Reference Bernards2022a, Reference Bernards2022b; Koddenbrock, Kvangraven, and Sylla, Reference Koddenbrock, Kvangraven and Sylla2022). As Nance and Tsingou (this volume) note in their discussion of correspondent banking relationships and remittances, financial institutions in colonized countries also tend to remain subject to infrastructures largely operated from metropolitan powers and vulnerable to disruption largely beyond their control. The limited availability of credit for agricultural and industrial development in former colonies has been a persistent policy concern throughout much of the twentieth and twenty-first centuries (see Bernards, Reference Bernards2022b). Analysis of durable colonial legacies in financial systems speaks to a wider trend towards examining the ways that contemporary development interventions replicate the spatialities, power relations, and practices of colonial rule (e.g., Engel and Susilo, Reference Engel and Susilo2014; Cavanagh and Himmelfarb, Reference Cavanagh and Himmelfarb2015; Wainwright and Zempel, Reference Wainwright and Zempel2018; Enns and Bersaglio, Reference Enns and Bersaglio2020).

While previous research has shown clear echoes and parallels between the era of formal colonial rule and the present, less attention has been devoted to explaining how past and present patterns of activity are related. As Cooper (Reference Cooper2005, pp. 17–18) rightly notes, we should be wary of ‘leapfrogging legacies’ in discussing the enduring impacts of colonialism – of claiming that ‘something at time A caused something in time C without considering time B, which lies in between’. It is not enough to show a correspondence between past and present patterns without either tracing patterns of continuity and change over time, or showing how continuities are reproduced. So what is it, then, that makes colonial histories durable?

The argument in this chapter is that a lens focused on financial infrastructures – adopting what the editors of this volume call an ‘infrastructural gaze’ (see Westermeier, Campbell-Verduyn, and Brandl, this volume) is highly useful for understanding the durability of colonial patterns of uneven financial development. The argument is focused on African colonial history, with detailed illustrations primarily based on the Kenyan case, but much of what is argued is also likely of wider applicability. I develop the argument in four steps in what follows. Section 2 argues for an infrastructural lens as a means of explaining and exploring colonial continuities. Section 3 briefly describes the landscape of colonial financial systems. Sections 4 and 5 consider some of the key infrastructures of colonial financial systems – bank branches, and collateral in land – and the role that they’ve played in replicating colonial financial geographies over time.

2 How Do Colonial Histories Persist?

A number of recent analyses draw on the concept of ‘infrastructures’ to make sense of long-run colonial legacies (see Mitchell, Reference Mitchell2014; Desai, McFarlane, and Graham, Reference Desai, McFarlane and Graham2015; Davies, Reference Davies2021). Notably, many of these have focused on East Africa, predominantly on transport mega-projects (e.g., Enns and Bersaglio, Reference Enns and Bersaglio2020; Kimari and Ernstson, Reference Kimari and Ernstson2020; Aalders, Reference Aalders2021; Lesutis, Reference Lesutis2022). ‘Infrastructures’ here are understood, following Bowker and Star (Reference Bowker and Star1996), in the broader sense of backgrounded technical systems allowing basic functions and circulations to be carried out.

This kind of ‘infrastructural gaze’ (Westermeier, Campbell-Verduyn, and Brandl, this volume) offers promising means of making sense of colonial continuities in two ways. First, infrastructural systems, as a number of authors have argued, were integral to the development of colonial economies, and in the process solidified particular patterns of social relations. Notably, a number of authors have shown how the production of particular kinds of infrastructures was critical to colonial governance across multiple scales (see Kooy and Bakker, Reference Kooy and Bakker2008; Pritchard, Reference Pritchard2012; Mullenite, Reference Mullenite2019; Cowen, Reference Cowen2020; Davies, Reference Davies2021). Infrastructures embody ideas about how societies should be organized, produce, and reproduce racial hierarchies, and entrench inequalities in access. Colonial infrastructures were ‘themselves productive of race’, in Sherman’s (Reference Sherman2021) words, insofar as they codified formal racial hierarchies in a variety of different ways (I discuss one example of this, racial restrictions on land titling, later in this chapter). Davies notes – referring directly to Latin America, but making a point that could apply more broadly – that ‘It was through infrastructural networks that colonialism and imperialism operated, which made relations of economic dependency and neo-colonialism possible’ (2021, p. 741). This is no less true of financial infrastructures, although the latter haven’t been studied in historical perspective in the same depth as things like ports, rail, or water and sanitation infrastructures have.

Secondly, thinking in terms of infrastructures offers a useful perspective on the durability of colonial-era systems. Infrastructure studies in general include a perspective on patterns of continuity and change which is highly useful here. Infrastructures are rarely overhauled wholesale. Emphasizing infrastructures helps to consider how new technical systems intermingle with existing ones. As Susan Leigh Star (Reference Star1999, p. 382) puts it, ‘[i]nfrastructure does not grow de novo; it wrestles with the inertia of the installed base and inherits strengths and limitations from that base’. As a result, infrastructures pattern the spatial and functional arrangement of social practice, sometimes long after their original uses have ceased. In Marieke de Goede’s words: ‘Infrastructural technologies … inscribe specific ways of doing things – of routing flows, enabling functionalities, structuring interactions. Often, infrastructural grids – of roads, electricity networks, payment routes – sediment historical power relations and core-periphery relations’ (De Goede, Reference de Goede2021, p. 354). These durable systems form the ‘installed base’ (per Star, Reference Star1999) into which new technologies must normally be fitted, through complex processes of adjustment and retrofitting.

One reason why colonial histories cast such a long shadow on the present, in short, is that they are embedded in material networks without which (post)colonial political economies quite simply could not function. Colonial infrastructures thus represent ‘imperial remains’ in the sense highlighted by Kimari and Ernstson – they are entangled material and social networks that retain important traces of colonial social relations long after the formal end of colonial rule (2020, p. 827). Financial infrastructures are a key mechanism through which spatial patterns rooted in colonial practices of racialization and exploitation have been produced and have persisted long after the formal end of colonialism. Some existing analyses have tentatively developed arguments in this direction. De Goede (Reference de Goede2021) in particular has drawn on infrastructure studies to trace out the durable legacies of colonial financial systems – although thus far in very general terms, marking out a research agenda rather than exploring in detail how financial infrastructures enable patterns of continuity and change in post-colonial settings (see also Bernards, Reference Bernards2022a, Reference Bernards2022b). However, while the materialities of colonial infrastructures clearly matter, they are not mechanistically replicated over time. As Aalders puts it, ‘the ruins of empire – both material and metaphorical – are durable but do not determine the present’ (2021, p. 997). What’s critical here is that an attention to colonial financial infrastructures helps to reveal durable challenges with which subsequent development efforts have grappled.

3 The Colonial Financial System and Its Infrastructures

Colonial financial systems prompted uneven development on two levels. First, they were extractive in character. It’s unquestionably true that colonialism generally enriched colonizers – or, primarily, some fractions of capital in metropolitan centres – at the expense of the people and territories that were colonized. Vast fortunes were extracted from colonized territories. Utsa Patnaik (Reference Patnaik, Chakrabarti and Patnaik2017, p. 311) has recently estimated, for instance, that net transfers from India to Britain between 1765 and 1938 amounted to £9.18 trillion. Finance capital was a key beneficiary of all this – the London money market was a major source of finance for governments, mining, and infrastructure projects globally throughout the latter half of the nineteenth century. Financial institutions in colonial territories also served in important senses as ‘channels’ for the extraction of surplus (see Rodney, Reference Rodney2018). Equally, though, colonial capitalisms also worked through the production of differentiated spaces within and between colonized territories, often closely linked to the geography of state power. If the generally extraverted character of colonial financial systems is a key common trait, the differentiation of colonial territory is nonetheless also an important dynamic shaping colonial financial systems.

Colonial capitalisms generated polarization between cities and countryside, built infrastructures – transport and financial systems in particular – designed to smooth the flow of raw materials for export, and actively underdeveloped some territories to create reserves of cheap labour for large-scale mining and plantations. The financial sectors that emerged in these contexts were generally clustered around urban centres, closely linked to metropolitan capitals, and often made their profits primarily by providing remittance services or by lending for large-scale public works rather than productive credit (see Bernards, Reference Bernards2022b, Reference Bernards2023; Koddenbrock, Kvangraven, and Sylla, Reference Koddenbrock, Kvangraven and Sylla2022, for more detailed discussions). Where they did directly invest in or lend to directly productive activities, this was disproportionately steered towards large-scale plantations or mining operations. In fact, colonial banks in many territories often held the majority of their income-earning assets in metropolitan centres rather than in colonies. Colonial banks very rarely developed the infrastructures – routines, social relations, or physical structures – necessary to lend to the majority populations in colonized territories.

In Sections 4 and 5, I’ll describe some of the problems thrown up by the financial infrastructures that were developed in colonial contexts. I put particular emphasis on networks of physical branches linked by transport and telecommunications systems, and on the use of land as collateral.

4 Bank Branches

Physical bank branches, linked together by road, rail, sea transport, and telecommunications systems, were critical infrastructures in colonial financial systems. They played a key role in administering the vital functions of the financial system – notably, assessing credit risks and settling payments. Moreover, if banking operations in colonial Africa depended in large part on social relations and embedded patterns of social practice, branches were important sites where those interactions took place. Previous work has highlighted how branch networks primarily clustered around major cities and other sites of expatriate economic activity (e.g., South Africa’s mines or Kenya’s settler farms). Some previous research has traced a major expansion in branch banking across sub-Saharan Africa in the 1950s (see Engberg and Hance, Reference Engberg and Hance1969), including in some of the case study countries (Morris, Reference Morris2016; Velasco, Reference Velasco2022). This expansion was highly uneven, with new branches disproportionately built in territories with higher concentrations of older branches. There is clear evidence that certain territories – notably those with concentrations of settlers (including Kenya and South Africa) or major export industries (notably cocoa in Ghana) – were disproportionately targeted for new branches (see Table 9.1).

There were, in a number of instances, dramatic expansions of commercial banking systems in the decade before decolonization. There was, for instance, a significant expansion of branch networks across sub-Saharan Africa, particularly in British territories, in the 1950s, for instance. What’s notable, though, is how much the density of bank branches in 1950 seems to have shaped the density of branches at the end of the decade. Kenya was a major focus of this expansion, along with Ghana, Nigeria, and then-Rhodesia (see Engberg and Hance, Reference Engberg and Hance1969, p. 196). Historians have often attributed this expansion in part to efforts by banks in Kenya and elsewhere in sub-Saharan Africa to navigate the political and economic pressures created by decolonization, as well as to capitalize on business opportunities seemingly opened up by the ‘developmental’ colonialism (see Cooper, Reference Cooper1996) of the post-war period (see Engberg, Reference Engberg1965; Engberg and Hance, Reference Engberg and Hance1969; Bostock, Reference Bostock1991; Morris, Reference Morris2016; Velasco, Reference Velasco2022). While this is broadly true, we can usefully situate this development, and understand its limits, with reference to the patterns of uneven development and contestation described earlier in this chapter. If the expansion of branch banking in the 1950s was in some senses a spatial fix for British capital tentatively seeking out new spaces for accumulation in colonized territories, it was also one that was strongly shaped by the configuration of existing financial infrastructures.

This uneven development of branch banking between territories was mirrored by the uneven development within territories. To take one of the key examples with denser branch banking networks, until 1950, bank branches in Kenya were predominantly located in Mombasa and Nairobi (Engberg, Reference Engberg1965, p. 190; Bostock, Reference Bostock1991; Morris, Reference Morris2016, p. 652), and virtually all in ‘White Highland’ areas (see Section 5). As Morris notes, ‘of the 20 areas of Kenya where the three major banks … were represented in 1950, only two (Kisii and Bungoma) were not dominated by European enterprise’ (2016, p. 652). In large part because of the presence of settlers holding mortgageable property titles, Kenya had a comparatively deep financial sector in contrast to most other territories in sub-Saharan Africa (see Newlyn and Rowan, Reference Newlyn and Rowan1954, pp. 76–77). This was reinforced by the fact that Mombasa and Nairobi were sub-regional commercial centres linking export agriculture across East Africa to world markets. Advances to merchants trading elsewhere, especially in Uganda, were typically contracted in one of these two cities (Newlyn and Rowan, Reference Newlyn and Rowan1954, p. 87).

Banks sought to build physical infrastructures that would enable them to profit from the potential rise of a ‘middle class’ of Kikuyu farmers in proximity to the White Highlands (see Morris, Reference Morris2016). In practice, though, the lending operations of commercial banks were refocused on short-term commercial loans in Nairobi and Mombasa (Hyde, Reference Hyde2009, p. 86). While banks built new branches in African-dominated rural areas, these new branches engaged minimally in credit provision. For one major commercial bank, Jørgenson (1975, p. 160) reported in the mid-1970s that the median ratio of advances to deposits in rural branches was 28%, against 58% in urban branches. The result was that expanded branch networks largely channelled rural savings to European- and Indian-owned commercial firms. African borrowers accounted for less than 3% of credit from commercial banks as late as 1967 (Jørgensen, Reference Jørgensen and Widsrand1975, p. 158). The figure remained only 14% in 1973 (Jørgensen, Reference Jørgensen and Widsrand1975, p. 161).

These patterns of uneven infrastructural development appear to have had significant impacts on more recent development. The rapid development of mobile money and digital credit in Kenya is widely celebrated, but uneven. Mobile money and digital credit have had to ‘wrestle with the installed base’ (per Star, Reference Star1999, p. 381) of existing financial infrastructures, and in important respects they mirror the geography of colonial financial systems outlined earlier in this chapter. These differences are especially pronounced when looking at credit. Digital and mobile credit have proven to be more controversial than payments, with concerns about growing over-indebtedness facilitated by digital credit apps (see Donovan and Park, Reference Donovan and Park2019), even from erstwhile fintech promoters (e.g., Izaguirre, Kaffenberger, and Mazer, Reference Izaguirre, Kaffenberger and Mazer2018). The potential role of mobile money in laying the groundwork for expanded credit nonetheless remains a key claim about the long-run benefits of mobile money (see Kaffenberger, Totolo, and Soursourian, Reference Kaffenberger, Totolo and Soursourian2018). So patterns of credit access are particularly telling. And, critically, the rollout of mobile and digital credit closely mirrors the colonial financial geographies highlighted earlier in this chapter.

As shown in Table 9.2, the proportion of residents in Nairobi Metropolitan Area and Mombasa reporting past or present borrowing using both mobile money services (25%) and digital lending apps (18.2%) is more than double the respective use rates of mobile (12.3%) and digital borrowing (7.1%) elsewhere. Kenya’s fintech boom, in short, is predominantly an urban phenomenon, and especially concentrated in Mombasa and in and around Nairobi. While consumer lending, as opposed to commercial lending, has grown dramatically with the advent of the new apps, particularly in the context of widespread precarity in cities, the extension of credit has taken place much more rapidly in proximity to existing financial infrastructures.

The overarching point here is that the fintech boom reflects patterns visible across successive episodes of financial restructuring in Kenya and elsewhere. We can understand this as being the result, at least in part, of a tendency for restructured financial operations to rely on and work through existing infrastructures. The expansion of new financial services, both in the last decade of formal colonial rule and with ‘innovative’ fintech applications since around 2010, has tended to follow the established geography of branch networks. If we want to understand the ways that colonial patterns of uneven development continue to weight on changes to postcolonial financial systems, an infrastructural gaze is important.

5 Land and Collateral

Another key infrastructure of colonial financial systems was the use of land as collateral for loans. There is an extensive literature on colonial and post-colonial land issues across Africa (among others, see Manji, Reference Manji2020; Ouma, Reference Ouma2020; Dieng, Reference Dieng2022) and more widely. Several recent contributions have shown how systems of property title were central to the historical formation of racial hierarchies and colonial economies, and to the persistence of colonial legacies (Keenan, Reference Keenan2017; Bhandar, Reference Bhandar2018). References to a lack of suitable collateral as a primary reason for limited lending to Africans in colonial financial systems are commonplace from authors working in a wide range of different theoretical and methodological perspectives (e.g., Newlyn and Rowan, Reference Newlyn and Rowan1954; Cowen and Shenton, Reference Cowen and Shenton1991; Uche, Reference Uche1999). Economics and economic history perspectives on colonial legacies, as noted, often centre on the form and ‘quality’ of property rights under colonial systems.

Property titles to agricultural land were a critical financial infrastructure; indeed, transferrable property titles which could be repossessed in the event of default were arguably the main mechanism by which banks assessed and managed credit risks. In performing this function, property titles also constituted and entrenched processes of racial and spatial differentiation. In Manji’s phrase, ‘Kenyan land policy was … racialised at its inception’ (2020, p. 32). Titles to land in the White Highlands were reserved for ‘European’ settlers. Nominally ‘uninhabited’ or ‘unused’ land was claimed by the Crown and subsequently made available for purchase by settlers. Importantly, the question of what constituted ‘vacant’ land was contested – especially because the state treated fallow land and rotating pastures as ‘vacant’. The allocation of land for white settlement disrupted existing forms of agriculture and pastoral livelihoods, and was contested throughout the colonial period, particularly by Kikuyu agriculturalists living near the Highlands (Coray, Reference Coray1978). The associated policy of segregating African populations into restrictive ‘reserve’ areas based on ‘tribal’ groupings also helped to reshape and reproduce ethnic differentiation (Kanyinga, Reference Kanyinga2009, p. 328).

Alongside their role in processes of racialized dispossession, the role of land titles as specifically financial infrastructures also strongly shaped their development. Notably, land rights were initially conditional on ‘productive’ use, as the state sought to minimize land speculation. This was quickly overturned as settlers complained that such restrictions inhibited their ability to use purchased land as collateral: ‘the settlers are naturally anxious that the land on which they spend their labour should be a marketable and mortgageable security’ (East Africa Protectorate, 1908, p. 30). Officials also began to view speculation on land as a means of raising the value of farmers’ collateral, hence enabling wider access to credit (Lonsdale and Berman, Reference Lonsdale and Berman1979, p. 499). In short, while racial restrictions remained in place, other restrictions on property titles were quickly removed, specifically in order to facilitate land use as means of assessing credit risk.

Settler agriculture was highly stratified. Some large individual and corporate landholders could access relatively cheap credit in London; the bulk of settlers on smaller plots were reliant on the colonial financial system (Van Zwanenberg, Reference Van Zwanenberg1975, pp. 278–279). Many of the latter were heavily indebted, particularly because banks loaned against the market value of land rather than farm income (Van Zwanenberg, Reference Van Zwanenberg1975, p. 280). Small settlers in particular increasingly depended on access to cheap labour, secured mainly through the forcible underdevelopment of reserves and restrictive laws governing the movement of African populations (Berman and Lonsdale, Reference Berman and Lonsdale1981, p. 62). While short-term migrant labour remained important, longer-term tenant farmers (‘squatters’), governed by increasingly restrictive Resident Native Labour Ordinances gradually increased as a proportion of the labour force. The intersection of credit infrastructures with racialized structures of property relations in this sense was also crucial. It was not simply ownership over land, but also the control this granted over access to credit – and hence over inputs and machinery – that enabled settler control over migrant and tenant labour. Indeed, the importance of uneven access to formal credit is underlined by the adoption, at the behest of settlers, of increasingly severe restrictions on credit to Africans (see Jørgensen, Reference Jørgensen and Widsrand1975, p. 150).

In short, the use of mortgageable property titles to exclude some borrowers from formal financial markets was in fact a feature of colonial financial infrastructures rather than a bug. The contrast with trading economies in West Africa is instructive here. Uche (Reference Uche1999) shows particularly clearly that merchants increasingly saw the restriction of bank credit to African farmers as a crucial element of maintaining their control over cheap crops. Indeed, merchant firms often actively resisted state-backed efforts to reform agricultural finance, explicitly recognizing the vital role of credit in ensuring control over cheap crops. If the needs of colonial capital were different between colonies organized around settler-run mines or plantations and territories organized around the export of commodities produced by small farmers (needing cheap labour in the former and cheap crops in the latter), credit infrastructures designed around the collateralization of land allowed the mobilization of both.

There were tentative efforts to support African agriculture in Kenya from the 1930s, particularly in Kikuyu regions adjacent to the White Highlands, with the colonial state seeking both to expand its fiscal base and contain growing political threats. These efforts were given considerably greater emphasis by the intensification of the Mau Mau rebellion – an armed revolt led by the Kenya Land and Freedom Army, concentrated in Kikuyu-dominated regions, which was brutally repressed by the colonial state (see Anderson, Reference Anderson2005). Alongside the horrific counterinsurgency, agricultural reforms – implicitly or explicitly targeted to Kikuyu areas – formed a key part of the colonial response to the rebellion. Roger Swynnerton, then-Assistant Director of Agriculture in Kenya, was appointed to propose a strategy for agricultural development in 1953. Swynnerton’s report marked a shift towards an explicit policy encouraging the development of African agriculture (Shipton, Reference Shipton1992), intending to create a politically ‘stabilized’ middle class of property-owning Kikuyu farmers. Land titling, again, was central to these reforms. Swynnerton proposed expanding formal land titling to ‘African’ areas, facilitating the use of such titles as collateral, and as a result expanding the scope of capitalist agriculture while using minimal state resources: ‘If Africans … achieve titles to their land in economic units, much greater facilities should be made available to them for borrowing against the security of their land’ (CPK, 1954, pp. 54–55). This was, notably, explicitly presented as an alternative to providing direct state support (CPK, 1954, p. 54).

What’s important about the Swynnerton proposals is that, rather than amending financial infrastructures to address the restrictions they posed for African agricultural development, the reforms sought instead to alter the way that African communities held land. This approach ultimately threw up important political contradictions which eroded the effectiveness of credit infrastructures oriented around agricultural land.

The point here is that racialized restrictions on property ownership operated as a critical mechanism through which the colonial financial system and colonial economy more widely were produced. Land titles in this sense operated as financial infrastructures and generated important problems for subsequent development, which ironically gradually undermined the utility of land titles as credit infrastructures. The anti-colonial movement was split over whether settler land should be restored to pre-colonial inhabitants or redistributed among existing residents, as well as the nature of land rights that should be implemented (see Kanyinga, Reference Kanyinga2009; Manji, Reference Manji2020). The Kenya African National Union (KANU) – dominated by Kikuyu elites – backed the maintenance of property rights where they existed and the redistribution of settler land through purchase, while the Kenya African Democratic Union (KADU) advocated for the restoration of control over land to pre-colonial inhabitants. KADU proposals would have meant the restoration of the White Highlands primarily to collective control by predominantly Kalenjin pastoralist groups who had been displaced by the definition of ‘uninhabited’ land deployed by the colonial state. KANU ultimately won the pre-independence elections in 1963, with Jomo Kenyatta as prime minister (and subsequently president).

The KANU government under Kenyatta pursued a programme of resettlement of settler land. From 1962 to 1966, approximately 20% of settler land was purchased by the state and sold (on credit) to smallholders; by the 1970s half of former settler land had been redistributed (see Boone, Reference Boone2011, pp. 79–80). This redistribution preserved a stratified system based primarily on private ownership, albeit one in which some African (and particularly Kikuyu) elites were able to accumulate large holdings (see Manji, Reference Manji2020). It also established strong state control over the allocation of land for smallholders, many of whom were subject to de facto tenancy arrangements in which they were unable to hold a formal land title until repaying (often unpayable) debts to the government for the purchase of settler land (see Boone, Reference Boone2011). All of this reinforced the highly ethnicized nature of land conflicts, which was arguably intensified after Kenyatta’s death and succession by Vice-President Moi in 1978. Under Moi the accelerated redistribution of land in former reserves, and frequent scapegoating of Kikuyu smallholders as sources of land scarcity, was a means of developing and mobilizing a cohesive Kalenjin political identity. Large tracts of land were turned over to politically aligned elites under Moi (see Boone, Reference Boone2011, pp. 85–86).

These changes did have a dramatic effect on the composition of agricultural production. At the end of the colonial period, roughly 80% of agricultural exports came from ‘large’ farms in the White Highlands and 20% from ‘small’ farms in reserves, by the end of the 1960s the ‘large’ and ‘small’ farm sectors each produced about half (see Njonjo, Reference Njonjo1981, p. 31). These transformations further cemented the orientation of the major banks towards commercial activity in Nairobi and Mombasa, with agricultural lending restricted to large landholders. The fragmentation of land into smaller plots and the uncertain control of smallholders over land titles meant that the viability of agricultural land as security was greatly diminished (see Shipton, Reference Shipton1992). In practice, increasingly, ‘the ability to attract credit from commercial sources has been established to depend not only on the title deed per se, but rather on additional assurance of wage labour, where it is easier to attach salaries for repayment requirements’ (Gutto, Reference Gutto1981, p. 54). Agricultural borrowing was primarily restricted to the largest farmers (many of whom, as noted, had close ties to KANU), particularly those could draw on incomes from formal salaried jobs or commercial property. Survey research in the 1970s found that, while roughly 10 per cent of smallholders overall had significant sources of off-farm income, 70 per cent of farmers contracting commercial loans did (Collier and Lal, Reference Collier and Lal1980).

Observers in recent years point to parallel processes of land consolidation and fragmentation. Hakizimana et al. (Reference Hakizimana, Goldsmith, Nunow, Roba and Biashara2017, p. 564) show in a detailed analysis in Meru county that, while households with access to off-farm income have generally been able to expand landholdings, these represent a minority of rural households. The vast majority of others have only been able to acquire land through inheritance, leading to increasing fragmentation and pressure on land. Fibaek (Reference Fibaek2021) shows similar patterns nationally – with increasing rural stratification alongside falling farming incomes and productivity across strata, with the wealthiest households increasingly pursuing reinvestment in off-farm income. From the 1990s, there was also a dramatic expansion of new crops, notably horticultural exports, including cut flowers and fresh vegetables for European markets. This has been reliant on the growth of a landless or semi-landless population engaged in wage labour, often on a casualized basis, and the incorporation of smallholders into precarious outgrower schemes (Dolan, Reference Dolan2004; Hakizimana et al., Reference Hakizimana, Goldsmith, Nunow, Roba and Biashara2017).

Critically, the reforms introduced in the final years of colonial rule and first decades of independence left intact both the shape of the commercial financial sector and the privatized character of land ownership – indeed, the main thrust of colonial reforms was to introduce private land titles into reserve areas in a failed effort at increasing access to credit for African smallholders. Colonial and post-colonial states unwilling or unable to directly challenge the patterns of private landownership established under colonial rule have been faced with escalating conflict over land and access to water, exacerbated in the 1970s and 1980s and again since 2020 by severe droughts (see Mkutu Agade et al., Reference Mkutu Agade, Anderson, Lugusa and Atieno Owino2022). The point here is that the place of land as a financial infrastructure in the colonial era has had enduring impacts both for the geography of Kenya’s financial system and more widely in social and ecological terms.

6 Conclusion

In this chapter, I’ve argued that financial infrastructures offer us an important lens on the durability of colonial histories and the ways that the latter pose problems for contemporary development. Colonial financial systems were radically uneven in both social and geographical terms. This has had critical consequences for subsequent development. Looking in particular at the example of Kenya, this chapter has shown how bank branch networks and land titling operated as key infrastructures of colonial financial systems, and how the uneven development of these infrastructures mapped onto the wider uneven development of colonial financial systems and economies on one hand, and generated important problem for post-colonial development on the other. The historical details presented here are necessarily more suggestive than comprehensive. However, they do suggest the value of closer investigations of colonial financial infrastructures, particularly the development of land titling and branch networks.

Colonized territories continue to mostly occupy subordinated positions in the global financial system (see Alami et al., Reference Alami, Alves, Bonizzi, Kaltenbrunner, Koddenbrock, Kvangraven and Powell2023). Equally, financial systems within colonized territories remain highly uneven, unstable, extraverted, and unable to mobilize resources and investment in ways that will foster development (see Bernards, Reference Bernards2022b; Koddenbrock, Kvangraven, and Sylla, Reference Koddenbrock, Kvangraven and Sylla2022). An ‘infrastructural gaze’ (Westermeier, Campbell-Verduyn, and Brandl, this volume) helps towards understanding how these dynamics persist. One important feature of infrastructures is their durability over time. They condition the form and geography of subsequent developments. As such, a lens focused on financial infrastructures offers us a useful way of understanding the ways that colonial financial hierarchies persist and mutate over time. This kind of perspective usefully calls our attention to the ways that historical patterns of colonial finance remain embedded in financial infrastructures, and how the contradictory development of these infrastructures over time has shaped the development of financial systems as well as wider development outcomes.

In this sense, a focus on specifically financial infrastructures is also a useful complement to a wider debate that has emerged around the ‘coloniality of infrastructure’ in recent years (see Cowen, Reference Cowen2020; Enns and Bersaglio, Reference Enns and Bersaglio2020; Kimari and Ernstson, Reference Kimari and Ernstson2020; Davies, Reference Davies2021). There’s a tendency in these debates to focus on large-scale built systems – things like roads, railways, or water and sanitation systems. These systems were, generally, built up to support an extractive colonial economy, embody and reproduce racial hierarchies, and condition subsequent development in important ways. Insofar as finance enters into these debates, though, it is often as an accelerant of imperial extraction and uneven development (as, for instance, in the late nineteenth-century railway boom, in which British capital was exported into major rail projects, primarily in settler colonial territories, see Cowen, Reference Cowen2020). One of the reasons why it’s particularly important that we turn an infrastructural gaze on colonial finance is that colonial financial systems are no less extractive, no less racializing, no less consequential for post-colonial development – and indeed no less material and embodied – than transport or communication networks. But financial infrastructures are perhaps less obviously visible, and often deliberately opaque and obscured. Colonial financial infrastructures matter a lot, but it takes work to uncover them.

1 Introduction: The Telegraph as Financial Infrastructure

Few technologies changed financial markets more profoundly than the telegraph. Before the telegraph, information and capital moved between financial markets only at the speed of sailing ships or the overland mail. Pricing disequilibria between markets, and price volatility within them, persisted for significant periods of time (Koudijs, Reference Koudijs2016). The introduction of the telegraph to financial markets in the mid-nineteenth century changed this. Financiers rapidly operationalized the telegraph and used it to pursue much faster arbitrage operations between markets (Garbade and Silber, Reference Garbade and Silber1978; Michie, Reference Michie1997; Hoag, Reference Hoag2006; Müller and Tworek, Reference Müller and Tworek2015). Thanks in large part to the global spread of the telegraph, financial markets at the end of the nineteenth century were more integrated than ever before (Neal, Reference Neal1992; Bordo, Eichengreen, and Kim, Reference Bordo, Eichengreen and Kim1998; Campbell and Rodgers, Reference Campbell-Verduyn2017). Beyond enabling securities arbitrage, the telegraph also enabled money orders and remittances to be transmitted between both individuals and financial institutions (Magee and Thompson, Reference Magee and Thompson2006). Telegraphic infrastructure cast a long shadow in the financial system. When the telegraph was replaced by the telex in the mid-twentieth century, the system continued to operate using telegraphic cables laid in the 19th and early 20th centuries (Scott and Zachariadis, Reference Scott and Zachariadis2014). In the late twentieth century, when fiber optic cables finally replaced telegraph cables, the new cables followed the undersea routes first established by telegraph companies a century before (Eichengreen, Lafarguette, and Mehl, Reference Eichengreen, Lafarguette and Mehl2016). By enabling financial actors to move capital and information at far greater speeds across far greater distances, the telegraph helped usher in the first age of financial globalization and has no small claim to being one of the most impactful technologies in the history of finance (O’Rourke and Williamson, Reference O’Rourke and Williamson1999).

While this story is true in a macroeconomic sense, it is also incomplete. Almost all of the secondary literature cited in the first paragraph rests on a fundamental assumption of technological determinism. Financiers and financial institutions simply seem to react rationally to the exogenous appearance of technological innovations like the telegraph. Competition and contestation within financial institutions (let alone between them) for control over new technologies are considered negligible in the face of the aggregate efficiency gains new technology brought (Pardo-Guerra, Reference Pardo-Guerra2019, pp. 7–8). Recent research has challenged the empirical dimension of this approach directly by questioning the extent to which the telegraph actually did bring efficiency gains to financial markets (Philippon, Reference Philippon2015; Davies, Reference Davies2018; Bliss, Warachka, and Weidenmier, Reference Bliss, Warachka and Weidenmier2020). But there is also a more deceptive way in which this technologically deterministic approach has warped our understanding of the telegraph’s role in the history of finance. “The telegraph” in this literature appears as an abstraction – a generalized catchall that occludes the wide variety of different technological apparatuses, cables, circuits, and administrative practices which actually operationalized the telegraph within the financial system.

By viewing the telegraph not merely as a static technical object but as a financial infrastructure, a different understanding of the relationship between finance and the telegraph emerges. Thinking about the telegraph as an infrastructure highlights the relational and social nature of its functioning; that is, the technological gains in efficiency the telegraph brought were always shaped and distributed through social processes occurring within and between financial institutions. Put simply, the connections between financiers and financial markets that the telegraph enabled were unequal. Some of the world’s largest financial markets, like the London Stock Exchange (LSE), pushed for increased telegraphic connectivity in order to siphon business away from smaller exchanges globally. Many smaller exchanges saw increased telegraphic connection not as a harbinger of economic efficiency, but as a predatory threat, and thus resisted increased telegraphic connection. As the European powers jockeyed for imperial supremacy in the late 19th and early 20th centuries, geopolitics too played out within the technical details of the global telegraphic network. A delay or deficiency in one empire’s telegraphic system often led financial actors to route their orders through the telegraphic infrastructure and financial markets controlled by an imperial rival. The gains in efficiency that the telegraph brought inaugurated a conflict among financiers, financial institutions, and imperial states about who would obtain the benefits of that increased efficiency.

Questions about how the financial power and efficiency of the telegraph would be distributed were not only played out as a struggle between financial institutions and imperial states, but also occurred within a different set of relations: those between the technical object of the telegraph itself and the many human workers responsible for its operation and maintenance. Ostensibly mundane and seemingly apolitical technical questions about managing electrical current, repairing wires, and organizing message delivery systems took on increased importance as financiers, financial institutions, and imperial states looked for an edge over their competitors. Often, these technical questions revolved around managing the limitations of the telegraph’s infrastructural system rather than maximizing its efficiency. Many newer and faster telegraphs caused damage to the preexisting infrastructure of wires and cables or they contributed to an increased burden on the people tasked with transmitting and delivering messages, creating bottlenecks in the system. Small technical details within the telegraphic system very often had large financial and political ramifications.

Understanding the telegraph as a type of financial infrastructure allows us to see not only the aggregate gains in economic efficiency that new technology brought to financial markets, but how financiers, financial institutions, and states all struggled to incorporate new technology and reshape it for their own ends. In other words, how these institutions fought to capture the efficiency gains that telegraphic technology brought with it. Understanding the telegraph as a form of financial infrastructure allows us to move between different scales of analysis, connecting the technical challenges inherent in simply making the system work to the larger political-economic conflicts about who that system would work for. The rest of this chapter turns to one particular example of this phenomenon, particularly the LSE’s attempts to influence both the domestic and global telegraphic network in the late 19th and early 20th centuries.

2 London’s Telegraphic Dominance

Power differentials between core and periphery, and between imperial powers, have been a central concern in the history of telecommunications (Headrick, Reference Headrick1981; Bayly, Reference Bayly1996; Hills Reference Hills2010). Yet these power differentials are surprisingly absent within histories of the telegraph and finance. It is a striking omission, especially considering just how central financial business was to the profits of telegraph companies and how stridently financial institutions strove to reshape the global telecommunications infrastructure for their own advantage. As recent debates around high-frequency trading have revealed, when market information and orders are transmitted at faster rates, competition for small edges in transmission speed and minor reconfigurations of market structure become more important to market actors, not less (Easley et al., Reference Easley, Lopez de Prado, O’Hara and Zhang2021; MacKenzie, Reference MacKenzie2021). In other words, as the introduction of the telegraph sped up connections between all global financial markets, the competition between markets and firms for seemingly small edges in telegraphic transmission speed became ever more intense (Robertson, Reference Robertson2024). While the telegraph helped integrate markets on a long-run, macroeconomic scale, small differences in telegraphic connectivity had distributional consequences in determining which markets and firms profited from global financial integration. Speed was always relative.

London sat at the center of the global telecommunications network in the nineteenth century and exercised the most power over the network’s development (Wenzlhuemer, Reference Wenzlhuemer2013, pp. 271–273).¹ Britain’s geographical placement off the coast of Europe made it the natural meeting point for telegraphic cables passing between Europe, on the one hand, and North America, the Caribbean, and South America on the other. Advantages of geography were reinforced by the might of the British Empire. Imperial security concerns – and Britain’s raw ability to enforce them – helped create a network of direct telegraphic cables between Britain and the far-flung corners of its empire (Kennedy, Reference Kennedy1971; Headrick, Reference Headrick1991; Headrick and Griset, Reference Headrick and Griset2001). The British financial sector, especially the LSE, was another key factor in abetting London’s rise to telegraphic centrality. As the largest and most liquid financial market in the world, the high amount of daily business that was transacted via the telegraph on the LSE made it a profit center for many telecommunications companies who began to cater their services specifically for the use of Britain’s financiers.

Thanks in large part to the telegraph, the LSE’s reach was truly global (Cassis, Reference Cassis2006, pp. 98–100). As one observer from the New York Stock Exchange wrote in 1912: “the London Stock Exchange is the only really international market of the world. Its interests branch over all parts of our globe” (LSE, 1911, p. 353). Because of Britain’s deep pool of investors and the concentration of capital in London’s banks, many companies operating outside of Britain in the 19th and early 20th centuries dual-listed their securities in their local market and on the LSE (O’Sullivan, Reference O’Sullivan2015). The proliferation of dual-listed securities alongside the expansion of the telegraph network led to the explosion of specialized securities arbitrage. Communicating via the telegraph, arbitrageurs in London would work with local partners in markets throughout the world to eliminate the pricing discrepancies in dual-listed securities. London’s telegraphic centrality enabled extensive arbitrage operations, which in turn created a powerful network effect, as London could offer the most liquid markets in most securities combined with the closest prices, cementing the LSE’s place as “the centre to which the bulk of investment and speculative business naturally flows” (Armstrong, Reference Armstrong1939, p. 141).

The scale of the LSE’s business gave it a tremendous amount of power not only over the global financial system but also over the telegraph network. The exchange and its brokers were some of the first clients of new telegraph companies during the 1840s and 1850s (Baines, Reference Baines1898, p. 158; LSE, 1842–1852, p. 309). Even after the domestic telegraph service in Britain was nationalized and brought under control of the General Post Office (GPO) in 1870, the LSE continued to exercise considerable influence over how the telegraph was operated. Nationalization of the telegraph posed a set of difficult tradeoffs for the GPO to manage. While the GPO did not have to worry about turning enough of a profit to pay a dividend like a private company, individual departments did have a mandate to be economically “self-supporting” (Daunton, Reference Daunton1985, pp. 83–84). The GPO faced a tradeoff between supplying a neutral and fair telegraphic service to all users of the network at a higher cost for everyone or catering specifically to the needs of financiers in order to secure revenues that would subsidize cheaper use of the telegraph by members of the public. Throughout the 1870s and 1880s the GPO opted for the latter, allowing stock exchanges throughout Britain to have privatized telegraph offices and preferred access to public telegraph wires in order to drive up revenues from the financial system and subsidize the costs of telegraphs for the rest of the public.²

Preferred access to the telegraph network, and the advantages such access conferred, were not distributed equally even among financial institutions. The LSE benefitted disproportionately from the system of direct “stock wires” that was set up in the 1880s between its trading floor and those of the major provincial exchanges, including Liverpool, Manchester, Glasgow, Leeds, and Dublin. Telegraphic connection between London and the provincial stock exchanges quickly began to erode the uniqueness of provincial share lists (Campbell, Rogers, and Turner, Reference Campbell, Rogers and Turner2020). Shares were increasingly dual-listed on their local provincial exchange and on the LSE, which led to a robust arbitrage business among British exchanges. But due to the LSE’s massive advantage in liquidity over the provincial exchanges, the profits of arbitrage trading between London and the provinces were vastly unequal.³ One of the managers of the Liverpool Stock Exchange estimated that twenty times as much business was sent from Liverpool to London against what was sent from London back to Liverpool (Thomas, Reference Thomas1973, p. 89).

The LSE was even able to influence the development of the telegraphic network in more obviously unequal ways. During the late 1880s, a number of the provincial exchanges formed a plan to establish direct “stock wires” between each other in order to combat London’s monopolization of the arbitrage business. The plan was thwarted by the GPO and the LSE, as well as some of the major provincial exchanges themselves. The Dublin Stock Exchange, for instance, was already displeased at how much business they had lost from the telegraph and believed that establishing more telegraphic links of any kind would “take business away” from their exchange (Thomas, Reference Thomas1973, p. 103). The GPO, meanwhile, moved swiftly to protect the massive revenues it received from the LSE and subsequently passed a resolution to “discontinue direct (telegraphic) communications between all provincial offices that have not a direct wire to the London Stock Exchange” (Thomas, Reference Thomas1973, p. 103). Smaller exchanges, like Birmingham, Sheffield, Halifax, Huddersfield, and Bradford, which had pushed for a network of telegraph wires between provincial exchanges, were instead forced to compete amongst each other for direct wires to London, which continued to siphon off the majority of the arbitrage business for itself (BT, 1898–1927).

3 Global Telegraphic Influence and Its Challenges

Imperial competition between Britain, France, and Germany mounted in the 1890s and global telegraphic infrastructure was a crucial stage upon which this competition was played out. Germany and France were particularly frustrated by Britain’s global dominance of telegraphic infrastructure and began to lay their own telegraph cables to circumvent those controlled by Britain. The most impactful of these challenges to British telegraphic supremacy came from a German-laid transatlantic cable in 1900 that connected the German city of Emden to New York City via a waystation in the Azores. It was the first cable that allowed for transatlantic telegraphs to entirely bypass Britain and was so successful that another cable along the same route was laid just two years later (Headrick, Reference Headrick1991, pp. 105–107). In response to the telegraphic challenge from its imperial rivals, the British state began taking a firmer hand in managing its global telegraphic infrastructure (Kennedy, Reference Kennedy1971; Headrick and Griset, Reference Headrick and Griset2001, p. 552). This included the nationalization of the Submarine Telegraph Company in 1890 and the GPO’s subsequent management of the telegraph service between Britain and Europe.

London’s arbitrageurs had long been frustrated with the poor quality of the telegraph service that connected their exchange to the principal European exchanges. Delays and telegraphic traffic jams were frequent (Financial Times, 1891, p. 1). Since arbitrageurs took advantage of small price discrepancies in the same security that was traded on two or more different markets, even a slight delay in the transmission of a message could be the difference between a profitable or unprofitable transaction. Thus, slow transmission or delays in telegraphs to or from London led financial actors to route their orders to different exchanges on more efficient telegraph routes, depriving London’s arbitrageurs of business and the LSE of liquidity and close prices.⁴ For instance, the telegraphic connection between London and Italy was so slow that arbitrageurs in the key Italian bourses – namely Milan and Rome – often routed their orders to the Berlin Bourse first and only then on to London if an arbitrage opportunity still existed (Statist, 1896, p. 749). Other major cities and their financial markets – like Vienna and Budapest – still did not have a direct telegraph connection with London but they did have one with Berlin, and thus also routed most of their arbitrage business to the Berlin Bourse. Without liquid markets and close prices (provided in large part by arbitrageurs), the incentives to route orders to London would further erode and the network effects that had solidified the LSE’s financial dominance could be undone. Telegraphic dominance and financial dominance were closely intertwined.

Telegraphic transmission from Britain to the continent was so bad that even British financiers were beginning to circumvent British-controlled telegraph cables when routing their orders to Europe. In 1886, direct telegraph wires were laid that connected Liverpool to Le Havre in France and Hamburg in Germany, allowing Liverpool to send telegraphs directly to continental Europe without routing them through London first. However, almost all of the traffic from the North of England was also routed over these wires, creating constant telegraphic traffic jams and transmission delays. For “all intents and purposes,” a delegation of Liverpool financiers complained, they were not “in direct communication with (Continental Europe) at all” (BT, 1911–1921, File XVI). While arbitrageurs from Liverpool and elsewhere in the British provinces could route their orders to Europe through a relay in London, doing so meant that London arbitrageurs would almost always be a step ahead in closing arbitrage opportunities in European markets. Instead, arbitrageurs in the British provinces began to bypass London entirely by sending messages to New York via American- and British-controlled cables, from where they were relayed over the new, German-owned cable to continental Europe. Even though this route was physically longer, the time difference between New York and Liverpool meant that the transatlantic cables were relatively traffic-free during the European business day, so messages could be relayed and transmitted more quickly (BT, 1911–1921, File XVI). Delays and telegraphic traffic jams on the routes between London and financial markets in continental Europe caused more and more financiers to route their orders over German-controlled telegraphic infrastructure to German markets.

The decision to nationalize the Submarine Telegraph Company gave the LSE a unique moment of leverage over the GPO, and the exchange fought hard to win provisions that would improve its telegraphic connections to Europe. The LSE threatened to raise the rent on the GPO’s new offices significantly, from the £250 per year that the Submarine Telegraph Company had previously paid to £500 per year. However, if the GPO established direct telegraphic communication between London’s trading floor and those of the key European exchanges like Paris, Amsterdam, Brussels, Berlin, Frankfurt, and Hamburg, the exchange was willing to waive rent altogether (BT, 1889–1946, File I). Up until that point, telegraphs were handed in at offices located in the stock exchange but were sent via pneumatic tube to the GPO’s Central Telegraphic Office a few blocks away, from where they were transmitted to the continent. With few exceptions, financial telegraphs arriving in Europe would similarly have to be transmitted from a central office and then relayed to the local stock exchange. Direct “bourse-to-bourse” service attempted to cut out these middle relays within the telegraph network. The GPO, eager to save money on rent and hopeful that the new stock exchange wires would increase business, quickly agreed to the arrangement. But the LSE and the GPO would both come to find that influencing the global telegraphic network would prove much harder than influencing the domestic one.

Establishing direct telegraphic communication between financial markets was a far trickier proposition in practice than it was in theory. There were two major problems. The first was technical. How would the GPO actually implement the direct telegraphic connection between the LSE and its European counterparties? The second problem was administrative. How could the GPO convince European telegraph services (most of which were imperial rivals with Britain) to prioritize the transmission and delivery of financial telegraphs?

The technical problem of creating direct telegraphic connections between stock exchanges was exacerbated by Britain’s position off the coast of Europe. Any new cables laid between London and Europe had to be undersea cables, which were significantly more expensive and technically more difficult to lay than overland cables. This was financially unfeasible for the GPO. Instead they explored two different options: diverting existing telegraph wires exclusively to stock exchange business and introducing new, more advanced telegraph apparatuses that would enable a higher volume of messages to be sent over existing wires.

Diverting wires for exclusive stock-exchange business was both technically and administratively challenging. It also highlighted the stark differences that existed in telegraphic connectivity between different cities and financial markets in the late nineteenth century. On the one hand, cities like Paris had extensive telegraphic connections with London. By 1889, there were 11 telegraphic wires connecting the two cities and, at the peak of the business day, over 280 telegraph messages per hour were sent between the LSE and the Paris Bourse. “If there is pressure of business of any particular kind it is spread over the whole eleven wires,” a GPO official noted, but if five wires were diverted for exclusive bourse-to-bourse service, “a pressure of Stock Exchange business could only be met by the use of those 5 wires and the remaining six would not be available” (BT, 1889–1946, File III). Alternatively, many of the smaller exchanges in Europe did not have enough traffic to merit an exclusive wire. Antwerp, Brussels, and Hamburg all maxed out at between fifty and sixty stock exchange telegraph messages per day (BT, 1889–1946, File II). It was only the stock exchanges with a medium volume of messages where the GPO believed an exclusive wire would be a benefit. Amsterdam, Berlin, and Frankfurt all averaged between 150 and 250 stock exchange telegraph messages per day. Each city had more than enough telegraph wires running into such that diverting one wire exclusively for stock exchange business would not affect the telegraphic capacity of the rest of the system. There was no way to stand up a true system of bourse-to-bourse telegraphy across such an uneven telegraphic landscape. By the end of the 1890s, the GPO had quietly given up on the project of diverting wires to the direct bourse-to-bourse service because it was an inefficient solution to the problem.⁵

The complaints from the LSE and its arbitrageurs, however, did not abate (LSE, 1910–1913, pp. 143, 169). The GPO, in turn, searched for new solutions to the problem, namely the introduction of more advanced telegraph machines. If higher volumes of traffic could be processed on fewer telegraphic wires, more wires could be exclusively committed to stock exchange business without system-wide slowdowns. Two new telegraphic apparatuses invented by David Hughes and Émile Baudot offered a possible solution. Hughes and Baudot telegraphs specialized in duplex and quadruplex telegraphy, respectively. As the terms suggest, duplex and quadruplex telegraphy enabled two and four messages to be sent along the same wire in different directions. This was a major improvement upon previous systems of telegraphy that operated on a simplex system, which could only send one message in one direction over a wire at a time. Simplex systems were easily overwhelmed by even a moderate amount of traffic, and led to particularly financial forms of manipulation. Liverpool brokers complained that when they attempted to telegraph Germany via their direct, simplex wires, German firms could simply “block the wires” by flooding them with telegraph messages in the opposite direction (BT, 1911–1921, File XVI). Not only could Hughes and Baudot telegraphs handle a higher volume of traffic, but they also automatically printed their messages out, rather than waiting for a human operator to transcribe them. All told, the average words per minute increased from twelve to fifteen on Morse telegraphs, to thirty-one on Hughes telegraphs, to thirty-five to forty on Baudot telegraphs (Butrica, Reference Butrica1986, pp. 78–83, 97–107).⁶

Even though multiplex telegraphy brought significant gains in speed and efficiency, its infrastructure was also more fragile. Multiplex telegraphy worked by splitting the electrical signal it sent over the wire, which made it especially hard to manage on long wires (where the signal would weaken) and undersea wires (where the saltwater created increased electrical interference). Moreover, wires within the same cable that were operated with a quadruplex system frequently created electrical interference with other wires that were operated on a simplex or duplex service (BT, 1911–1921, File VII). The technical issues involved were so thorny and persistent that even as late as 1935, only three out of the thirteen critical and busy transatlantic cables utilized any form of multiplex telegraphy at all (Federal Communications Commission, 1936, p. 44). Many of the gains in efficiency achieved by more advanced telegraph apparatuses were limited or complicated by the technical fragility of the infrastructure on which they depended.

It is here that labor and administration – the other key problem the GPO faced – came into play. Not only were the more advanced, multiplex telegraphs dependent on a fragile infrastructure, but they were also technically much harder to operate than earlier telegraphs. Operators needed to have a knowledge of electrical engineering in order to troubleshoot problems and keep the telegraphs in synchrony with each other, on top of their usual duties of rapidly transmitting messages (Butrica, Reference Butrica1986, pp. 115–116; Hindmarch-Watson, Reference Hindmarch-Watson2020, p. 65). In Britain, expansion of Baudot telegraphs went slowly in part because the GPO was careful to make sure each operator had enough experience handling the apparatus before they were assigned to operate an entire circuit on their own (BT, 1911–1921, File VII). Similar problems regarding the training of operators plagued the European service as well. Even though the French telegraphic system had been early adopters of Baudot telegraphs – putting over 100 Baudot machines into use by 1891 – French telegraph operators and engineers struggled to implement duplex and multiplex working throughout their service, preferring to use the more advanced machines of Baudot to simply accelerate their existing simplex telegraphic services (Butrica, Reference Butrica1986, pp. 99, 112–113). When the GPO began attempting to expand duplex and multiplex telegraph service throughout its European circuits, British engineers did not hide their frustration with their French counterparts. The “French administration,” one engineer complained, was known to be “not favorably disposed to duplex working as a general principle” (BT, 1911–1921, File VII). The difficulty of operating and maintaining advanced telegraph apparatuses created new bottlenecks in training a sufficient number of operators for the telegraphic workforce.

Frustration with European telegraph operators was not the only administrative hurdle the GPO faced. In Britain, telegraph messages were delivered from the transmission offices to clients via a small army of telegraph messenger boys. At its peak, the GPO employed 3,200 messenger boys in 1897 and trained them with a military-style rigor (Hindmarch-Watson, Reference Hindmarch-Watson2020; Joyce, Reference Joyce2013). Many arbitrage firms employed their own private messenger boys as well. Life as a messenger boy in an arbitrage firm entailed less militaristic discipline but placed a premium on physical speed. As one stockbroker told a messenger boy in his firm, “in the City, as young man you never walk, but always run” (Janes, Reference Janes1963, p. 47). The same was not true in continental Europe. British arbitrageurs complained that while “sharp boys” delivered telegrams in Britain, European telegrams were delivered by “army pensioners and other middle aged or old men, sometimes women who are naturally slower than boys” (BT, 1911–1921, File XVI). The European delivery systems had other drawbacks as well. For instance, telegraph messengers in Paris were instructed to “wait until there are a number (of messages) for the same district,” rather than delivering telegraphs individually as they arrived (BT, 1911–1921, File XVI). In order to avoid the delays that occurred when messages were transmitted via the different national telegraphic systems, British arbitrageurs increasingly routed their orders to Europe via private American telegraph companies, like Western Union. Unlike the GPO, private American telegraph companies could use their own messenger boys in European offices and were therefore able to deliver messages “with the same expedition” that customers had come to expect in Britain (BT, 1911–1921, File IV). Creating a direct, bourse-to-bourse system of telegraphy was beset with technical and administrative challenges that bedeviled the GPO for years.

Gradually, the problems of implementing the bourse-to-bourse system began to give way. By 1911, the GPO had successfully introduced multiplex telegraphy to a number of its domestic telegraph circuits. Armed with an adequate number of highly trained operators, and some key technical innovations – like the adoption of anti-induction devices which helped ease problems of electrical interference between wires in the same cable – the GPO began to push for the introduction of Baudot multiplex working on the key European circuits that connected London to Paris and Berlin (BT, 1911–1921, File VII). Buoyed by the success of Baudot working with Paris and Berlin, the GPO expanded Baudot usage to the Amsterdam circuits and the long-troublesome Milanese circuit by the end of 1912. They also laid further plans to aggressively increase Baudot working to the rest of the Netherlands, as well as Brussels, Hamburg, Frankfurt, Emden, and even to Budapest and Vienna, which had previously not had direct channels to London at all (Table 10.1).

The expansion of Baudot to Europe finally gave the GPO enough open telegraphic channels at their disposal to dedicate telegraph circuits exclusively to the “bourse-to-bourse” service. Rather than creating all new telegraph circuits and wires, the extra telegraphic capacity allowed the GPO to reallocate the circuits that serviced the bourses of Paris, Berlin, Frankfurt, Hamburg, Amsterdam, and Brussels to an office in the LSE for exclusive financial work (Table 10.2). For instance, the two Baudot circuits, which provided eight telegraphic channels between London and the Amsterdam central offices, enabled the GPO to transfer two Hughes circuits to exclusively service financial telegrams between the LSE and Amsterdam Bourse. The Paris and Berlin bourses were the only exchanges that received their own dedicated Baudot apparatus in addition to supplementary circuits operated by Hughes machines. Some administrative issues surrounding the delivery of messages remained. The telegraph office in the Paris Bourse handled both financial and ordinary telegraphs and it was not clear how to administratively disaggregate the two types of messages to ensure speedy delivery (BT, 1889–1946, File III). In London, the GPO still worried that splitting the operation of key circuits between the Central Telegraph Office and the LSE would necessitate an “amount of staff, considerably in excess of what would meet the requirement if the whole of the circuits were concentrated in one office” (BT, 1911–1921, File VII). But these were ultimately minor issues since “the disadvantages of working certain of the continental circuits from a point in London other than the Central Telegraph Office cannot continue to be regarded as outweighing the advantages of establishing direct communication between the Stock Exchange in London and the Continental Bourses” (BT, 1911–1921, File VII). In August 1913 the GPO signed off on a plan to establish a bourse-to-bourse system of telegraphy between the LSE and its European counterparts.

But the best-laid plans – and telegraph wires – sometimes go awry. When World War I broke out in August 1914 stock exchanges closed, international communication between warring nations was severed, and arbitrage trading became “practically impossible” (The Times, 1914, p. 17). The GPO and LSE abandoned their plans for implementing the bourse-to-bourse service. It would take another seven years before bourse-to-bourse telegraphy from the LSE was actually established, in 1921. Even then, the system was far more limited in practice than had been imagined before the war. Only the Paris and Amsterdam bourses were afforded direct telegraphic channels to and from the LSE and, notably, no German exchanges were included. Bourse-to-bourse service was also limited to the busiest hours of the business day (BT, 1911–1921, Files III, IV). Thirty-one years after the idea had first been proposed, a bourse-to-bourse telegraph service was finally in operation. But thanks to persistent problems inherent in managing complex technical infrastructure, sourcing enough staff to operate all the components of the system, and the shifting, explosive consequences of geopolitics, the bourse-to-bourse telegraph system was only ever implemented on a limited scale.

4 Conclusion

Focusing on the particularities of telegraphic infrastructure, rather than just the telegraph in the abstract, challenges many of our assumptions about the relationship between technology and financial markets in economic history. By paying closer attention to the operational details of telegraphic infrastructure, we can begin to move away from big bang accounts that emphasize a single moment of exogenous, technological innovation. Once the telegraph was introduced to financial markets and institutions, its benefits became relative. Telegraphic speed and capacity, as well as the economic benefits such speed and capacity bestowed, were always unequally distributed. Firms, exchanges, and states all had different imperatives when choosing how to implement and use the telegraph. Increased telegraphic connectivity was not always seen as an unalloyed economic good. The competing perspectives of different financial actors about how best to configure the telegraphic system had material consequences for how global telegraphic infrastructure was built and operated. Macro-level conflicts between different states and markets were often played out within the seemingly small and technical space of telegraphic infrastructure. This meant that the power of these states and financial institutions often rested on the infrastructural limits of the telegraphic system and on the workers whose job was to make that system run. Understanding the telegraph as a financial infrastructure, then, allows us to see how these seemingly small battles around technical details had large ramifications for the political economy of the financial system as a whole.

In the literature on the political economy of finance, and in particular global financial centres, the infrastructure of the material environment has tended to be underexamined, with only cursory attention given to how new technologies are enabled by urban planning decisions and built into the fabric of working spaces. Yet the production of certain infrastructure systems enables some financial centres to have a competitive advantage over others and shape the larger trajectory of capitalism. This chapter responds to this omission by exploring how the City of London (hereinafter referred to as the City), a core hub for financial and professional services, prioritised the remaking of its infrastructure as a way to rebuild and extend its power. The chapter argues that the City’s infrastructural architecture is a neglected feature of its authority. Despite some notable interventions, the general coverage of infrastructure in respect to the City remains sparse, or is located in industry-specific debates, a troubling analytical gap when one considers that the rule-making over, and manufacturing of, infrastructure is always an enduring question for government and private sector agents.

To conduct this survey, the chapter probes the political economy of infrastructural dynamics from the 1980s to the present, a prominent period in which the City has grappled with manifold commercial, technological, regulatory, and cultural changes. The argument uncovers how different groups of professional players – including major firms, local government agencies, property owners, architects, and developers – interacted in ways which produced a significant transformation in the infrastructural experience of the City. The chapter is organised into three sections. In Section 1, the discussion clarifies how financial infrastructure is being conceptually imagined as an evolving, historically determined process, including a particular emphasis on treating ‘hard infrastructures’, such as buildings, as part of a holistic analysis (Dyer et al., Reference Dyer, Dyer, Weng, Wu, Grey, Gleeson and Ferrari2019, p. 220). In the second and main section, the empirical story of the City’s physical change is explained. The discussion explores how two profound technological trends since the early 1980s – office computerisation and new telecommunications – provoked a remaking of the financial infrastructure of the UK’s main financial centre. The chapter unpacks how, during the 1980s, the City was confronted with major problems in its office stock, in respect to both overall capacity and the internal structure of how buildings could benefit from new technologies. Through the pressure of key banks, among others, the City altered its planning rules and encouraged the construction of its current built configuration; that is, a welcoming container and facilitator of global capital. Section 3 wraps up the chapter with some concluding thoughts.

1 Conceptualising Financial Infrastructure

As examined by Carola Westermeier, Malcolm Campbell-Verduyn, and Barbara Brandl in their introductory chapter to this volume (Section 1), the study of financial infrastructures is inevitably preoccupied with material objects, such as fibre-optic cables, computers, and payment systems, among many other examples. Yet any serious analysis of such structures will, through trying to make sense of functionality or wider politics, invite consideration of systemic socio-economic processes. As other writers have discussed in the social sciences, built infrastructures, or processes of ‘infrastructuring’ (Star and Bowker, Reference Star, Bowker, Lievrouw and Livingstone2002), have a ‘peculiar ontology’: they are things (to adhere to a substantialist philosophy where substances are treated as key units of enquiry), as well as relations between things (to align with a processual sense in which objects cannot be understood outside of relations) (Larkin, Reference Larkin2013, p. 329; Barua, Reference Barua2021). The making and implementation of any financial infrastructure includes a host of design and engineering problems, such as those involving the availability of materials; the relative resilience of existing technologies; the landscape of the built environment; and the links to, and impacts on, other ecosystems. Thus, to concur with other researchers, it arguably makes better conceptual sense to define infrastructures as ‘assemblages’ or ‘entanglements’ of human and non-human elements (Bernards and Campbell-Verduyn, Reference Bernards and Campbell-Verduyn2019).

This process-based interpretation of financial infrastructure also matters for how one understands historical change, a key theme of my discussion here on the City. In many depictions of financial infrastructure, as a subset of the broader category, the reader can be left with an impression that the system in question is ‘robust’ or ‘stable’ in some sense. Such descriptions are often linked to how power is explained, including the implication that certain financial infrastructures imbue or strengthen forms of power (business, state, sector, class, etc.). While this reading often has credence, any snapshot of empirical analysis which remains too fixated on the present, without a deeper historical context, runs the risk of underplaying the messy, social evolution of infrastructural forms. For instance, financial infrastructures are often threatened by decay, breakdown, and destruction for a range of reasons. Alternatively, new technologies enter financial markets – in the form of products, systems, or revolutions – and generate changes that were not easily anticipated at earlier points of creation. Financial infrastructures can be built for one purpose, yet also spawn unintended effects on other agendas and practices. In other words, despite appearances of permanence, the materiality of financial infrastructure is always undergoing constant change, necessitating in the process maintenance, repair, revision, or replacement (Ramakrishnan, O’Reilly, and Budds, Reference Ramakrishnan, O’Reilly and Budds2021).

With these points in mind, this chapter suggests that any concept of financial infrastructure needs to be open to the material whole within which such systems operate, including paying attention to the mutual interactions between different infrastructures. We need conceptual thinking which is flexible to trace and accommodate ongoing motion in the built environment, along with a sense of the indeterminacy and unpredictability of historical change. As a consequence, the discussion in the rest of this chapter views the notion of financial infrastructure through a wider, historically grounded lens, whereby ‘hard infrastructures’, such as buildings, are also treated as part of a systemic analysis under the same term (Dyer et al., Reference Dyer, Dyer, Weng, Wu, Grey, Gleeson and Ferrari2019, p. 220). In this sense, therefore, any political economy of financial infrastructure must involve ‘the structure of buildings, cities, and metropolitan regions’ (Ruby and Ruby, Reference Ruby and Ruby2017, p. 5), of which the City offers an illuminating case to which we can now turn.

2 Financial Infrastructural Change in the City of London

The City has historically been among the major financial hubs in the world, from its role enabling British colonialism during the seventeenth to early twentieth centuries to its international repositioning since the early 1950s (Kynaston, Reference Kynaston2002, Reference Kynaston2011; Cassis, Reference Cassis2010). Notwithstanding recent doubts around London’s status post-Brexit (Thompson, Reference Thompson2017; Kalaitzake, Reference Kalaitzake2022), the City is often ranked second to New York as a financial geography, with strengths in banking; insurance; asset management; fintech; as well as related professional services, such as law, accountancy, and consulting (Z/Yen, 2023). The focus here is on one aspect of this recent history: how we can understand infrastructural change in the City from the 1980s to the present. During this period, there was a significant transformation in the built environment of the Square Mile (the informal moniker for the City) to meet the demand for business activity and employment. Among key explanations for the expansion of the City during this time, scholars have tended to focus on macro-policy shifts, such as the initial development of the Eurodollar market; the Big Bang regulatory reforms in the 1980s; or further post-Cold War liberalisation efforts.¹ The political conditions that facilitated these commercial shifts are certainly vital to any story of the City. Yet the modern power of London as a financial centre and, in turn, its larger role in transnational capitalism, would not have been possible without corresponding changes in large infrastructural systems.

It is surprising how often this point is missing from many political economy accounts of the City’s history, although there are some notable exceptions (see Pardo-Guerra, Reference Pardo-Guerra2019). For some political economy analysts, disciplinary biases may be at play, such as categorising the built environment as an object of interest predominantly for geographers or other experts found in architecture and property. However, this lacuna undermines our understanding of the City as a financial centre in two major ways. First, from a practical commercial perspective, political rule-making is inevitably operationalised through infrastructures. But it should not be assumed that the built environment is ready for new commercial possibilities following a policy shift; rather, there is often a mismatch between supply and demand, provoking fresh struggles and a scramble for investment. Nor should it be assumed that policy-making, local or national, always initiate the creation of infrastructures since, as is often seen, unexpected technologies can pressure owners, tenants, and developers to advance quicker than policy makers. Secondly, this analysis matters for explaining the power that the City generates as a complex capitalist ecosystem. As some writers has argued, ‘London’s highly advanced (physical) technological infrastructure’ is ‘a competitive edge that is consistently overlooked within the literature’ (Kalaitzake, Reference Kalaitzake2022, p. 625). Infrastructural benefits of the City, such as transport connectivity, telecoms, and cyber resilience, are often promoted by policy makers to consolidate and extend the City’s power (City of London Corporation, 2023c). Indeed, we could go further to claim that the quality of the City’s infrastructure is not simply one factor among others (such as regulation, the legal environment, or human capital), but the foundation of its power, since certain forms of business activity could not operate adequately without such modern systems.

Two technological trends which profoundly shape the City’s built infrastructure will be highlighted in this brief account: (1) computerisation, understood as the incorporation of new desktop hardware devices and software systems into offices and (2) telecoms, particularly the roll-out of fibre-optic cable systems. Some contextual detail on these technologies is needed here before explaining the specific City history. In reference to the former, prior to the micro-computer revolution, companies dedicated entire rooms and floors to mainframe computers due to the size, heat, and noise of such equipment (Thomas, Reference Thomas2019, Reference Thomas2023; Kaufmann-Buhler, Reference Kaufmann-Buhler2021). In the 1960s, led by innovations in the USA, the use of computing was predominantly aimed at lowering clerical-related costs and human inaccuracies in the paper system (Thomas, Reference Thomas2014). From the 1970s, banks did make use of some terminals, such as the Quotron unit and screens made by Reuters and Telerate, but these were mainly for information purposes, such as displaying equity prices (Plender and Wallace, Reference Plender and Wallace1985; Pardo-Guerra, Reference Pardo-Guerra2019). In 1981, the debut of the personal computer (PC) by IBM heralded a new era; it was promoted as a multifunctional device that could be positioned on the desk of the worker for the first time. Such shifts towards the ‘mechanisation of office work’ were combined with a range of justifications, including enhanced productivity, customer service, and job satisfaction (Giuliano, Reference Giuliano1982). In contrast to the general PC, the Bloomberg Terminal, launched in 1982, was marketed as a customisable workstation for financial institutions seeking to connect their traders with real-time financial data and market-relevant news (McCracken, Reference McCracken2015). By the end of the 1980s, computerisation had become mainstreamed in major commercial centres, with an estimated three quarters of City employees working at a screen (Duffy and Henney, Reference Duffy and Henney1989).

In reference to telecoms – which should be viewed as interwoven with these corporate computing trends – the 1980s saw significant investment in fibre-optic technology as telecom firms rebuilt their communications infrastructure. Compared to copper cables, fibre optic offers a number of advantages, including: superior speed and greater bandwidth; lighter weight; minimal susceptibility to radio interference; and enhanced security. The first commercialised fibre-optic investments were made in locations and along routes where communication traffic was heaviest, such as around New York, Chicago, and Washington, DC (Moss, Reference Moss1987). Bandwidth capacity continued to improve through the 1980s and 1990s, along with lowered costs. In the UK, the development of such infrastructure was encouraged by the privatisation of the industry, which included an early experiment from 1981 with Mercury Communications, before the incorporation of British Telecom as a public limited company in 1984 (Moss, Reference Moss1987; Ward, Reference Ward2019). By 1989, the technology had advanced to enable the first transatlantic, submarine fibre-optic cable, a development which proved crucial for operationalising long-distance electronic foreign exchange trading (Eichengreen, Lafarguette, and Mehl, Reference Eichengreen, Lafarguette and Mehl2021). When the Internet began commercialising in the 1990s, data flows became more important than voice traffic, and fibre-optic cables were repurposed for handling the increasing demand for bandwidth and storage capacity (Graham, Reference Graham1999).

By tracing the impact of these macro-technological forces – which have obviously shaped many locations in the world – we can explore how infrastructural change co-evolved and, indeed, enabled the regulatory changes of the 1980s to become a material manifestation. This historical story highlights my argument about the need to track, through a process lens, infrastructural change in the service of finance where technology plays a disruptive force. We find that some agents are inevitably better at perceiving and preparing for these emergent trends than others. With this context in mind, we turn to address how the City was remade.

3 Conclusion

This chapter has explored how we can understand the recent historical evolution of financial infrastructure in a global commercial centre, the City of London. By examining two dimensions of infrastructure – modern computerisation and new telecommunications – I have explained how the built environment was transformed to facilitate the needs of major business enterprises. Infrastructure is conceptualised here as a process whereby technologies are physically enmeshed into a diverse array of socio-economic interests, reshaping working practices in the process. The operationalisation of this financial infrastructure in the City was initiated through the guidance (or threat) of USA, European, and Japanese banks, who wanted to enhance their working environments for profitable trading. But I have also explained how such direction can only be followed within a complex ecosystem of infrastructural organisation, involving legal planning agencies, property owners, developers, architectural designers, and relevant investors. Such decision-making includes attention to a range of concerns, notably competition with other financial centres, local heritage rules, and, increasingly, the desire for sustainability and diversifying the commercial function of the territory. Professional groups in such policy games interact with each other in different ways – ranging from cooperative ties to antagonistic struggles – to forge the blueprints for new forms of financial infrastructure. We need to understand how such infrastructure moves from conception to physical reality to grasp how financial centres, such as the City, try to retain and consolidate their forms of power. Once normalised, these systems often become taken for granted by end users yet, as plotted in this historical story, it would be better to recognise how such infrastructure is not just one dimension of capitalist life, but the very substratum enabling other structures of power to operate.

1 Introduction

Russia’s recent innovations in financial infrastructures, especially in the payment sector, have attracted some scholarly attention. Using a wider perspective on global processes, many authors (de Goede and Westermeier, Reference de Goede and Westermeier2022; Nölke, Reference Nölke, Braun and Koddenbrock2022; Shagina, Reference Shagina2023; Fantacci and Gobbi, Reference Fantacci and Gobbi2024) have examined the interconnections between the creation of new systems for financial transactions and the politicization of the established, Western-dominated systems, like the payment systems Visa and Mastercard, or the financial messaging system SWIFT (Society for Worldwide Interbank Financial Telecommunications) (see also Nölke, this volume). With a narrower focus on the alternative systems that were created in the Russian payment and banking infrastructure, Gusev (Reference Gusev, Batiz-Lazo and Efthymiou2016) has explored the history of payments in Russia and the chain of political decisions that can explain the creation of the new system. The political motivations behind the establishment of the new systems with regard to the aims of foreign policy and regional integration have been discussed by Gricius (Reference Gricius2020). Gorshkov (Reference Gorshkov2022) has examined more concretely the new systems’ relation to overall trends in cashless payment popularity in Russia, while, for example, Kochergin and Iangirova (Reference Kochergin and Iangirova2020) have looked at their long-term prospects. Between those two strands of research, Mishura and Ageeva (Reference Mishura and Ageeva2022) focus on newly created infrastructures in the context of financialization and contemporary Russian authoritarianism (Mishura and Ageeva, Reference Mishura and Ageeva2022).

The present chapter adopts a similar focus as Mishura and Ageeva (Reference Mishura and Ageeva2022) as it attempts to understand these structures as expressions of processes resulting from and reinforcing channels projecting infrastructural power. Concretely, the chapter discusses the consumer payment systems of the Mir payment cards and the Faster Payment System (FPS), as well as the plans for the creation of the Russian Central Bank Digital Currency (CBDC), the digital ruble.

Section 2 introduces the conceptual background for the case study. Section 3 discusses the case’s historical context and the origins and antecedents of the Central Bank of Russia’s (CBR’s) interventions in the financial infrastructures of the country. Section 4 addresses the development and nature of the newly created structures and discusses their ramifications in the framework of infrastructural power. Section 5 attends to the criticism of and controversies around the CBR’s policies in this regard, examines the way that the CBR is constituted as a state institution through the project, and discusses the implications of these processes for the future distribution of power within Russia’s political economy.

2 Theoretical Perspective: Infrastructural Power in Contemporary Russia

Infrastructural power denotes a way to project power indirectly and diffusely (see Chapter 1, this volume). In this vein, this section discusses the creation of payment infrastructures since the Soviet Union dissolved as a process connecting Russia’s legislative and executive powers, the financial regulator, and large state-owned as well as private companies. Michael Mann differentiates between despotic and infrastructural power of states. The latter he describes as “the capacity of the state to actually penetrate civil society, and to implement logistically political decisions throughout the realm” (Mann, Reference Mann1984, p. 189). Unlike despotic power, infrastructural power does not mean a control of civil society,¹ but the capacity to influence its activities by centrally coordinating them. While being analytically autonomous from one another, the two dimensions of power can coexist and mutually reinforce each other. The infrastructural power of an authoritarian state can mean a further monopolization of social power in the hands of the state and help enforce despotic control over the civil society and potential opposition groups emanating from it. The infrastructural power of states emanates from a need for territorially centralized coordination which cannot be provided by the civil society and is understood to be more effective from a functional perspective. Tendencies of militarization of the economy can lead toward an increased reliance on a more active coordinating role of the central state (Mann, Reference Mann1984).

Coombs (Chapter 4, this volume) argues that the concept of infrastructural power can be understood in three ideal types: instrumental, communicative, and network forming. Distinguishing these types helps to extend the possible perspectives informed by the concept and allows a fuller understanding of state–society relations with regard to the financial sphere. Instrumental infrastructural power is the ability of state institutions to intervene in the markets and contribute to the shaping of their workings and outcomes. Communicative infrastructural power refers to the state actors’, especially central banks’, explanations of their policy to the public. It entails the safeguarding of public trust in the institution’s competence to exercise its instrumental infrastructural power and its commitment to its declared policy goals. Network-forming infrastructural power describes the ability of the state to penetrate institutions that are of a hybrid state–civil character (Coombs, this volume).

The understanding of the latter network-forming type of infrastructural power relies on Mitchell’s (Reference Mitchell1991) argument that the state cannot be posited as an entity separate from society. The separation between state and society must rather be understood as a result of structural effects which constitute the state through a political process that takes place within the network of institutions of a potentially hybrid state–society character. The boundary of the state in this hybrid space is set by the exercise of state power itself.

The Bank of Russia, as the central agent that implements innovations in financial infrastructures, is entangled in the wider processes of power that shape both politics in Russia in general and the nature of the Russian state in particular. Especially concerning the post-Soviet period, scholars have often underlined the significance of interpersonal networks and rivalries between differing elite factions (Kononenko and Moshes, Reference Kononenko, Kononenko and Moshes2011; Viktorov, Reference Viktorov2015; Viktorov and Kryshtanovskaya, Reference Viktorov and Kryshtanovskaya2023). Those networks form an integral part of the state. At the same time, they are not limited to the state, but are also located outside of state institutions, especially at the nexus between the state and business (Kononenko, Reference Kononenko, Kononenko and Moshes2011, p. 6). Even though the beginning of Putin’s presidency in the year 2000 marked the beginning of the end of relatively unchecked, independent oligarch influence in politics, the significance of the networks and the rivalries between them have not declined (Kryshtanovskaya and White, Reference Kryshtanovskaya, White, Kononenko and Moshes2011).

With regard to the Bank of Russia, the relevance of networks also takes effect concerning the CBR’s functionaries. The appointment of the former minister of economic development, Elvira Nabiullina, as the Bank’s governor in 2013 hinted at closer ties between the regulator and the government (Johnson, Reference Johnson, Conti-Brown and Lastra2018). The appointment of Nabiullina was followed quickly by legislation that significantly expanded the CBR’s mandate and its regulatory competencies (Johnson, Reference Johnson, Conti-Brown and Lastra2018, pp. 113–114). Still, Nabiullina’s network affiliation has sometimes been located around the comparatively liberally perceived former president Medvedev (Kryshtanovskaya and White, Reference Kryshtanovskaya, White, Kononenko and Moshes2011, p. 36; Johnson, Reference Johnson, Conti-Brown and Lastra2018), and the CBR has long been considered a stronghold of economic liberalism (Johnson and Köstem, Reference Johnson and Köstem2016; Bluhm, 2024) within the wider tendencies to develop Russia into a state-controlled capitalist system via a steady increase of state ownership and control throughout the economy (Vernikov, Reference Vernikov2014). In the context of Russia’s escalation of hostilities in Ukraine since 2014, the CBR’s policy has repeatedly exhibited alignment with the government’s foreign policies, for example, when it withdrew around US$100 billion in US Treasury bills from the US Federal Reserve in the context of the annexation of Crimea in 2014, anticipating possible sanctions on the reserves (Johnson and Köstem, Reference Johnson and Köstem2016). Since Putin’s first term in office, the CBR has increasingly been pursuing policies to enhance monetary sovereignty. This enabled it to lessen the impact of financial sanctions and aid the executive’s foreign policy ambitions (Sahling, Reference Sahling2024).

The significance of networks for politics in Russia has to be taken into account to understand the way network-forming infrastructural power affects state–society relations. The hybridity of state–society relations is naturally less pronounced in the authoritarian state-capitalist context than in the more liberal, democratic context that Braun (Reference Braun2020) studied. Nevertheless, it plays a role with regard to the relations within the elites and between different power networks. The cashless payment systems that are the focus of this chapter constitute a special infrastructure within the wider infrastructure of the market where state and society actors interact and compete. The nature of this interaction and competition in the area of payment infrastructures has been radically altered in Russia since 2014.

3 Payment Infrastructures and State Power in Early Post-Soviet Russia

After the end of the Soviet Union, a fierce competition between Russian banks ensued as each fought to establish a leading national payment system, substituting international card payment brands. From 1992 on, the first Russian card brands emerged alongside the existing, but poorly developed acceptance network for Visa and Mastercard (Guseva and Rona-Tas, Reference Guseva and Rona-Tas2014, pp. 159–161). During the 1990s, the competition in the Russian market for card payments took place primarily among domestic brands, rather than against foreign competitors. The fierce competition between potential providers of a domestic solution that led to this fragmentation had been stimulated by discussions about the need for a domestic alternative to the international payment networks that had been going on since the early 1990s. Apart from arguments regarding cost efficiency and technological considerations, nationalistic arguments in favor of a domestic system referred to the need for independence from foreign-owned infrastructure (Guseva and Rona-Tas, Reference Guseva and Rona-Tas2014, pp. 158, 162).

The race to establish a dominating domestic network left the payment market highly fragmented, as the state had neither the capacities to develop an integrated solution itself, nor the capability to enforce cooperation in the sector (Guseva and Rona-Tas, Reference Guseva and Rona-Tas2014, pp. 162–163; Kochergin and Iangirova, Reference Kochergin and Iangirova2020). The infrastructural power of the state, both in its instrumental and in its communicative varieties, was insufficient to facilitate the coordination within civil society that would have been needed to create a common national system. Although it was declared politically desirable, the objective to develop a national payment system to overcome this fragmentation could not be achieved. Even though the impact of the 1998 financial crisis on the banking sector pushed the Russian banks toward some degree of cooperation, the international brands had become the dominant players in the market (Guseva and Rona-Tas, Reference Guseva and Rona-Tas2014, pp. 162–163). By 2003, their market share surpassed the share of the plethora of payment systems provided by Russian banks (Guseva and Rona-Tas, Reference Guseva and Rona-Tas2014, p. 158).

From 2010 on there were efforts to create a multifunctional identity card. This was meant to combine medical insurance information and information on federal and municipal services with a payment function. The largest and majority state-owned Russian bank, Sberbank, became the main shareholder of the company created to develop the card and the payment function was to be based on Sberbank’s own payment system, Sbercard. Even though the payment function was not the project’s focus, it was meant to promote cashless payment to facilitate payments for government services and social transfer payments and to help fight corruption. Even though the project was ultimately unsuccessful due to exploding implementation costs and a lack of user acceptance (Gusev, Reference Gusev, Batiz-Lazo and Efthymiou2016), it shows how the potential of cashless payment was connected early on to the prospect of further regulatory innovations that would significantly enhance the reach of the state through such infrastructures.

Sovereignty concerns about possible US access to Russian data and the danger of relying on foreign systems led to legislative initiatives to limit the role of foreign providers on the Russian payment market in 2011. The proposed law initially contained requirements to store reserves inside Russia as potential collateral in case of service disruptions and to store payment data exclusively inside Russia. With the more liberal part of the government being more critical about those requirements, and in the face of strong US lobbying against it, those provisions were ultimately removed from the proposal (Gusev, Reference Gusev, Batiz-Lazo and Efthymiou2016; The Guardian, 2010). The consolidated state still took measures to advance the creation of a national card payment system. In 2013, the CBR published a brief outline of a strategy to develop a national payment system in its regular bulletin. The need for such a system was justified by the potential for development regarding both the domestic economy and integration into the global economy (Bank of Russia, 2013, p. 32). According to the outline, the CBR’s role in the payment system should be enhanced, while the banking system should serve as the institutional basis of the payment system and competition in the sector should be safeguarded. The “single retail payment space” that should be created within the Russian Federation should subsequently be extended to the Eurasian Economic Community and the Commonwealth of Independent States,² thus facilitating cross-border transactions in the national currencies. Also, the supervision of the CBR over foreign payment service providers active in Russia should be strengthened (Bank of Russia, 2013).

In contrast to the 1990s, the proposed national solution now had to be introduced into a situation in which the dominance of the international brands was already established. Writing in 2014, Guseva and Rona-Tas described the new situation as an uphill battle and pointed out that “[i]f […] the Kremlin succeeds in challenging the hegemony of Visa and MasterCard, it would be a tribute to the power of the state to redraw development trajectories set in motion by a path-dependent logic” (Guseva and Rona-Tas, Reference Guseva and Rona-Tas2014, p. 164). What was unforeseeable at that point in time was the way in which the international reactions to Russia’s foreign policy after 2014 aided the state in breaking those path dependencies.

4 The Creation of Infrastructural Power over and through Payments

After Russia’s annexation of Crimea following the mass mobilizations that led to the resignation of Ukraine’s pro-Russian president Yanukovych in 2014, the European Union and USA imposed far-reaching sanctions on Russia. Apart from diplomatic and sectoral economic sanctions, the successively imposed measures also entailed targeted sanctions against selected institutions and individuals (Fischer, Reference Fischer2015; Kluge, Reference Kluge2019). The resulting disruptions in the cashless payment services provided by Visa and Mastercard impelled the Russian government to act. Already in March 2014, the two companies had suspended servicing cards issued by four Russian banks that were subjected to US sanctions due to their ties to Russian individuals who were blacklisted by the USA because of proximity to the Russian government. Visa and Mastercard were obliged to avoid any dealings with entities under US sanctions (BBC, 2014). For the same reason, the two companies suspended all their services in Crimea (Reuters, 2014).

These developments gave the political impetus for a significant exercise of instrumental infrastructural power on the payment market in the form of a law commanding the creation of a national card payment system within a year. This law contained the central features of the 2011 proposal, which had ultimately been discarded. Even though services were restored for two of the Russian banks after some days (Petroff, Reference Petroff2014), this law was signed about a month after the initial suspension. Apart from the creation of the domestic payment system, the legislation explicitly outlawed future suspension of services by international payment companies. To ensure some compensatory recourse in such a case, international payment providers were required to make a security deposit at the CBR to cover possible liabilities (RIA Novosti, 2014; The Guardian, 2014).

The CBR, as the agent of this infrastructural intervention, was given the momentum to start realizing the agenda that had already been outlined in the above-mentioned payment system development strategy in 2013, the year prior to the geopolitical fallout. It was bestowed with the task of simultaneously limiting the power of foreign payment services in the Russian market and creating the domestic alternative. To this end the joint-stock company National System of Payment Cards (NSPK), entirely owned by the CBR, was set up in 2014. While the setup foresees future sales of stocks, the CBR must retain the voting majority and a directing role in the company’s management (AO “NSPK,” 2023a; Interfax.ru, 2017). The NSPK’s Operations and Payment Clearing Centre (OPCC) was created first to facilitate the implementation of the requirement in the 2014 legislation that transaction data generated by any payment system active in Russia must be processed within its jurisdiction. In early 2015, domestic card transactions by the Visa and Mastercard systems started being processed through the NSPK’s OPCC, as was also required by the law passed in 2014. Providers with a small market share compared to Visa and Mastercard were shifted to the OPCC in 2016 (The Guardian, 2014; Kochergin and Iangirova, Reference Kochergin and Iangirova2020).

Martijn Konings had earlier argued, based on the US context, that financial crises catalyzed an extension of state power through the expansion of regulatory competencies (Konings, Reference Konings2010). The case of Russia’s post-2014 policies on payment infrastructures shows how geopolitical crises can have a similar effect. The institutions erected by the 2014 legislation were supposed to solve the problem of exposure to international sanctions by getting around foreign payment systems while simultaneously avoiding dependence on a nonstate infrastructure, which could narrow the scope of state power (Mann, Reference Mann2012, p. 59; Braun, Reference Braun2020; Braun and Gabor, Reference Braun, Gabor, Mader, Mertens and van der Zwan2020).

The disruptions in the services of the international payment cards revealed a potential void in Russia’s financial infrastructure and an urgency to act that gave momentum to the extension of CBR’s instrumental infrastructural power in the most literal sense. This way the state could also take up its objectives regarding a wider array of governance infrastructures. Unlike in 2005, payment was now the central feature and selling point.

Central to this is the “Mir” payment card system, which has been operated by the NSPK since 2015 (AO “NSPK,” 2023a) and has been expanded thanks to strong governmental support. After the first cards were issued in December 2015, the payment system was primarily promoted via mandatory schemes for recipients of transfer payments or workers in state or municipal institutions. In 2017, it was made mandatory to use Mir cards for any recipient of regular government payments (Interfax.ru, 2017; TASS, 2017). To sustainably expand the Mir system, the promotion efforts spread beyond initiatives directed to recipients of government funds. As a result of those initiatives, the number of card holders had increased significantly while turnover remained low since the target group was less likely to both use cashless payment methods and have high incomes at their disposal (Kochergin and Iangirova, Reference Kochergin and Iangirova2020). Banks as well as high-turnover retail stores and service businesses in Russia were eventually obliged to accept Mir cards at their ATMs and for payments, respectively (Interfax.ru, 2017). Additionally, the use of Mir was promoted through a variety of other campaigns, not only in the public sector. Many businesses have offered cashback schemes or reduced prices in connection with the use of Mir cards (AO “NSPK,” 2023b). The CBR plans to extend the use of such promotional campaigns in cooperation with commercial banks and retail and service providers (Bank of Russia, 2021b, p. 23). Such campaigns bolster the instrumental infrastructural power of the CBR since they entail a significant chain of influence inside the privately dominated retail market. The decisions involved in the creation of such agreements potentially have strong effects on the competitive position of market participants.

The development and propagation of the national payment system also provided a chance to advance other infrastructural projects in synergy with Mir card payments, as already envisioned in the initiative with Sberbank after 2010. Apart from the promotional campaigns with retailers and service providers, several regional projects introduced multifunctional cards that incorporated a function of payment through the Mir system. Mainly situated in the western part of Russia, these regional projects distributed citizen cards combining a payment function with, for example, identification and electronic signature functions, information about health and social insurance policies, and a payment mechanism for public transportation (Kochergin and Iangirova, Reference Kochergin and Iangirova2020). The CBR expects “that NSPK will participate in the development of mechanisms for the provision of state, municipal, social and other services to simplify the interaction of households with the government agencies […]” (Bank of Russia, 2021b, p. 23). An example of this is the development of a unified system for the cashless payment of transportation fees based on a processing system created by the NSPK (Transport NSPK, 2023). Campaigns through which multifunctional campus cards were issued to university students and the regional resident cards are to be expanded, and it is envisioned that a Unified Resident Card that incorporates various nonfinancial functionalities will be created (Bank of Russia, 2021b, p. 23). This opens up a variety of possibilities regarding the indirect and diffuse projection of state power vis-à-vis the citizens.

Another project that presents even further-reaching possibilities in this regard is the Russian CBDC, the digital ruble. It started its testing phase with a group of banks and a limited circle of clients in August 2023 and is supposed to be gradually introduced until it is used broadly in 2025 (Bank of Russia, 2023). The digital ruble is described as a third form of money, next to cash and the noncash money in bank accounts (Bank of Russia, 2020, p. 3). It aims to decrease transaction costs and, especially for remote areas of Russia, contribute to better financial inclusion (Bank of Russia, 2021a, p. 7; 2022c, p. 115). It is supposed to provide an alternative to the use of private digital currencies and should help reduce illegal activities (Bank of Russia, 2020, p. 10; 2022a, pp. 2, 20–24, 29). Innovations based on the digital ruble are also expected to benefit the state. The traceability of the coins will enable the government to determine on what kinds of goods digital government funds are allowed to be spent. In the initial communication regarding the project, a function designed to color the digital ruble was suggested. Digital rubles that the government pays for public procurement or other government contracts would be marked for a specific area of transactions and therefore blocked for spending for unintended purposes using smart contracts (Bank of Russia, 2020, pp. 15–16; 2021a, p. 19; 2022c, p. 115). Since that original communication, the CBR announced both that this provision will not be realized (RBK Crypto, 2023) and, later, that the question concerning the coloring function will again be considered at later stages of the implementation of the CBDC (Interfax.ru, 2023).

This shows that the possibility to use the digital ruble to determine the spending of funds received from the government is not only technically feasible but also a probable future way to extraordinarily extend the state’s coordination capabilities toward the market and society as whole. Technically, transactions in digital rubles should be carried out via a digital ruble platform provided by the CBR (Bank of Russia, 2021a, pp. 8–10). This way, all transactions can potentially become subject to surveillance by the CBR. This could allow the state to use the provided infrastructure for very targeted repression and lead to a unprecedented synthesis of infrastructural with despotic power capabilities.

5 Infrastructural Power in Conflict with the Banking Sector

The CBR underlines that the digital ruble is designed in a way that should uphold the existing mode of interaction between customers and commercial banks (Bank of Russia, 2021a, pp. 8–9). It is expected that the digital ruble will partially substitute other forms of money, negatively affecting liquidity and increasing volatility in the banking sector. A shock to the banking system is nevertheless not expected because it is assumed that the adoption of the money will be gradual (Bank of Russia, 2021a, pp. 25–26; 2022c, p. 119). Simultaneously, competition in the banking sector to attract or retain clients with better services and lower costs would be increased (Bank of Russia, 2020, pp. 3, 7–8, 16; 2022c, p. 120; Grishenko et al., Reference Grishenko, Morosov, Petreneva and Sinyakov2021).

In the course of developing the digital ruble, the CBR took into account the potential for conflicts with banks. In the communication on the topic, the process of gathering and incorporating feedback from the industry is prominently depicted (Bank of Russia, 2020, p. 40; 2021a, pp. 3–6; Skorobogatova and Zabotkin, Reference Skorobogatova and Zabotkin2021). Criticism from other parts of the banking sector nevertheless ensued. Commercial bank representatives expressed concerns that the digital ruble would constitute a direct competition to the established banking system. Apart from the risk of causing an outflow of funds from the banking system, the digital ruble could also endanger the position of the CBR as the independent regulator of the financial market (Kasarnovski and Koshkina, Reference Kasarnovski and Koshkina2021). Representatives of smaller banks expressed concerns about a possible monopolization of payment services in the hands of large banks (Tosunyan, Reference Tosunyan2020; Buylov, Reference Buylov2023).

A somewhat similar controversy had arisen earlier with regard to the regulatory support for the NSPK’s payment networks. Additionally to the Mir payment system, the NSPK had created the SBP, which was launched in January 2019 and enables instant payments using mobile phone numbers or QR codes, irrespective of the participants’ bank affiliation (Bank of Russia, 2021b, pp. 6–7). In October 2019, all banks that were systemically significant with regard to market share were obliged by law to service the new system (Yeremina and Astapenko, Reference Yeremina and Astapenko2019; Bank of Russia, 2021b, p. 7), a step that has not been taken with regard to Mir (Zarutskaya and Dubrovina, Reference Zarutskaya and Dubrovina2023). While most of the banking sector praised this decision, the biggest Russian Bank, the majority state-owned Sberbank, which accounts for about 60% of card transfers, initially refused to join the SBP and only did so after the imposition of penalty payments (Buylov, Reference Buylov2019). Sberbank has been creating its own system to transfer funds via telephone number. The head of Sberbank, German Gref, has repeatedly spoken out about the involvement of state-sponsored instruments in the financial market, for they would naturally create monopolies and skew the field of competition (Yeremina and Astapenko, Reference Yeremina and Astapenko2019). In an interview in June 2023, Gref also called for more competition in the payment sector and argued for either creating a structure parallel to the NSPK or privatizing it. Sberbank would not be able to develop such a system itself. The state should rather provide instruments for the banks to do so (Gref, Reference Gref2023). Also, representatives of the majority state-owned VTB and the private Tinkoff Bank expressed interest in taking part in the creation of an alternative system (Zarutskaya and Dubrovina, Reference Zarutskaya and Dubrovina2023).

Such criticism is acknowledged by CBR representatives but rejected by pointing out the concerns of the Russian state. In an interview with the newspaper Kommersant in 2021, the first deputy governor of the CBR and head of the NSPK’s supervisory board, Olga Skorobogatova, argued that the instruments created were infrastructural contributions and as such to be categorically distinguished from the banks’ commercial activities involving client interaction. These new infrastructures would rather contribute to creating the conditions for fair competition among the commercial banks. A future privatization – when further development goals, especially with regard to the Mir system, are accomplished – was possible, provided the return on the initial investment is guaranteed. Also, the building of this infrastructure has been a matter of national sovereignty. A possible privatization would have to take the “interests of the state” into account (Skorobogatova, Reference Skorobogatova2021). In response to calls in 2023 for the creation of a competing structure to the NSPK, the governor of the Bank of Russia, Elvira Nabiullina, expressed the same position, arguing that the NSPK as a private monopoly “will not be better than a state monopoly, because the services will be developing the interests of the private shareholders […]. This would hardly be a development of a nationwide infrastructure […]” (Zarutskaya and Litova, Reference Zarutskaya and Litova2023).

The invocation of the interests of the state when justifying the policy on financial infrastructures in the CBR’s communication raises the risk of undermining the regulator’s communicative infrastructural power. As Coombs (this volume) argues, the infrastructural basis of a central bank’s communicative power rests on steady public communication based on scientific methods to achieve a certain credibility of its expertise and policy choices. As the CBR increasingly positions itself as a state actor needing to safeguard state interests against the commercial banks, even the state-owned ones, it potentially jeopardizes such supposedly apolitical credibility. As already indicated by the CBR’s policies in the context of the annexation of Crimea in 2014 and the ensuing sanctions against Russia, the CBR is drawn closer to the government executive and away from its former position as a beacon of economic liberalism compared to other Russian state organs.

Supposedly to somewhat mitigate the risk of losing its credibility by engaging in political discourse, the CBR tries to avoid such discourse in its official publications. In the development strategy for the national payment system, geopolitical factors are merely mentioned as a feature of growing importance in international relations that is beyond the CBR’s sphere of influence but affects its work (Bank of Russia, 2021b, p. 31). At the same time, the invocation of the regulator’s role in safeguarding national sovereignty places it in a currently very significant ideological power network of a meaning system (Mann, Reference Mann2012, p. 7) positioning Russia in an existential struggle against a supposedly hostile West. This is line with tendencies of verticalization throughout the entire political structure since the beginning of Putin’s presidency. This indicates that the severely risen capability of the CBR to exert infrastructural power instrumentally makes its less reliant on the infrastructural character of its communication in this regard. At the same time, the pronounced self-positioning of the CBR as a state actor hints at how the network-forming infrastructural power of the presidency went hand in hand with this development.

The conflicts with the banking sector indicate that the projection of network-forming infrastructural power is not limited to the relation between the state and the CBR. Mishura and Ageeva (Reference Mishura and Ageeva2022, p.1123ff.) argue that Russia’s financial sector is increasingly shaped into a “financial vertical” in which financial flows are controlled by the state using quasi-monopolistic financial institutions, mostly banks. This happens alongside an increase of banks’ role in society which entails an expanding market share for the largest banks and a growing role for state-controlled banks. Financialization and the ascent of new financial technologies incentivize and facilitate the further strengthening of quasi-monopolistic state-related structures (Mishura and Ageeva, Reference Mishura and Ageeva2022). The discussions surrounding the CBR’s role in the market show that this to some extent also applies to the state-owned enterprises in the financial sector. Despite the state’s role as a majority shareholder, these institutions are market actors with some degree of leverage in their operational decision-making. With the entrance of the CBR into the payment market and, with the digital ruble, allegedly also into the banking market, the state insulates itself from possibly restricting influences that could emanate from different, especially rather economically liberal, elite factions in some of the state-controlled financial enterprises. The boundary between the state and the market was shifted by a strengthening of elite networks closer to the state’s power center at the expense of more peripheral networks within the elites. The position of the CBR as a state agency was further strengthened not only in relation to the private sector, but also in relation to other elite actors in the economy at the nexus between the state and the private economy.

6 Conclusion

After Russia’s invasion of Ukraine in February 2022, the significance of the Mir payment system became strikingly obvious, as Western payment card providers fully withdrew from the Russian payment market. Visa and Mastercards which have been issued outside of Russia stopped working inside the country, and cards issued by Russian banks are no longer serviced abroad. The Mastercard statement clarified that, due to legal requirements established after the first distortions in card services in the context of the imposition of sanctions in response to Russia’s annexation of Crimea in 2014, the company has no ability to block domestic transactions using Mastercard- branded cards (Mastercard, 2022; Visa Inc., 2022). The CBR announced that the domestic payment functions and customers’ funds connected to Mastercard and Visa cards would not be affected by the sanctions due to their processing via NSPK (Bank of Russia, 2022b).

In the years since Russia’s annexation of Crimea and the subsequent threat of financial sanctions on Russia’s use of Western financial infrastructures, the Russian state had accelerated the creation of alternative systems. The perceived urgency of the issue helped to overcome former logjams in this development. Central in this was the foundation of the CBR-owned company NSPK, which today operates the Mir payment system and the SBP. Further, the trial period for the digital ruble, Russia’s CBDC, was started.

The concept of infrastructural power, which describes the capability of the state to project power by coordinating activities in and logistically penetrating society (Mann, Reference Mann1984), helps to understand the ramifications of these developments. Coombs (this volume) argues that the concept of infrastructural power can be extended to communicative and network-forming effects that allow for a wider use of the concept in the understanding of state–society relations in the financial realm.

The seamless domestic functioning of Visa and Mastercard payment cards as sanctions were imposed in 2022 – made possible by the prior investments of the CBR – vindicated the position that such a strong engagement on the part of a state institution was justified. This large-scale state-driven development stands in stark contrast to the early years after the fall of the Soviet Union. Then the state did not possess the capacities to successfully launch such a project despite the goals not only to lessen the vulnerability of Russia’s payment sector toward foreign companies but also to make use of regulatory infrastructures that could be built using similar technological channels.

Domestically, the extension of the state via the construction of financial infrastructures was enabled by the consolidation of the state and its enhanced infrastructural power position. This concerned not only the financial means to make the necessary investment but also the heightened control over the CBR. Ensuring the CBR’s control over the Mir system served to avoid reliance on nonstate infrastructures which could limit the power of the state. Conversely, the propagation of the Mir system provided a vehicle to further infrastructural projects envisioned earlier, like the unified resident card, and also to strengthen the state’s grip on actors in the private economy. With the digital ruble, an even stronger infrastructural power over the entire economy and population at large is looming.

The creation of the new systems was incited by the constraints imposed by international sanctions. The revitalization of a discourse of national sovereignty and of threats to Russia’s geopolitical position led to an entanglement of political and economic considerations and facilitated a strengthening of tendencies toward an authoritarian state-controlled capitalist system. It shortened the perceived distance between the central bank and the state and enabled a significantly stronger state involvement in the payment markets.

One reason for this distance appearing to be diminishing is the fact that representatives of the CBR are defending their involvement in the payment markets against criticism from the banking sector by underlining its role in defending national sovereignty. This is untypical for central bank communication (Coombs, this volume), which derives its credibility, and therefore its capacity to enlist the public, from an ostensibly apolitical, technocratic appearance.

The discussion around the CBR’s role as a payment provider and its plans with regard to the digital ruble demonstrate the potential significance of the network-forming effect of infrastructural power, an effect which is obvious in the relationship between the state and the CBR, but also for the relationship between the state and the economy. In this it testifies to the monopolization of social power in the hands of the state and indicates that the boundaries of the state also run through large companies that are controlled by the state as a majority shareholder and that those boundaries are successively shifting outwards.

Overall, the development of financial infrastructures in Russia in recent years demonstrates the mutually enforcing character of despotic and infrastructural power (Mann, Reference Mann1984). It also shows how this was intended on part of the state when it lacked the capabilities to generate the needed coordination and how the external shock of the economic sanctions created the need to shift economic policies towards the needs of foreign and security policy.

Acknowledgements

This research was funded by the Deutsche Forschungsgemeinschaft via the Collaborative Research Centre/Transregio 138 “Dynamics of security” and developed within the research project “Financial infrastructures and geoeconomic security.” Barbara Brandl, Andreas Langenohl, Cornelia Sahling, Tim Salzer, Katharina Bluhm, and Carola Westermeier contributed very helpful feedback during the research process. Regina List provided crucial language editing and Nils Jansen indispensable research assistance. All remaining errors are my own.

1 Introduction

During my fieldwork in Beirut between May and December 2022, the exchange rate of the US dollar to the local currency, the Lebanese lira (LL), was the subject of daily conversations. I was frequently approached by self-proclaimed ‘financial experts’ speculating about the increase or decrease of the rate, and regular passers-by and friends would enquire about the most recent exchange rate. The exchange rate fluctuated drastically, varying between 30,000 LL and 40,000 LL for one US dollar within the span of a month. This exacerbated the dire economic situation for Lebanese citizens, because the exchange rate of the local currency to the US dollar determined what they could afford to buy since most products were imported.

Being pegged to the US dollar, the value of the local currency was dependent on the availability of US dollars at the central bank’s reserves. In 2019, Lebanon’s credit rating by several financial corporations dropped significantly, indicating that the Lebanese central bank was acquiring more debt than it could account for (Cordall, Reference Cordall2019; Rickards, Reference Rickards2020). To manage its debt and the dollar peg, the central bank depended on financial engineering and created attractive conditions to lure foreign dollar deposits from the diaspora and investors into the country (Rickards, Reference Rickards2020). However, this financial plan was not sustainable. The drop of Lebanon’s credit rating coupled with the financial sanctions targeting the region discouraged dollar deposits.

By 2020, it became clear that the central bank had failed to preserve enough US dollars in its reserves. This led to severe shortages of essential goods such as fuel, medicine, and food (Hubbard, Reference Hubbard2021). The situation was compounded by the COVID-19 pandemic and the devastating explosion in Beirut’s port in August 2020. Lebanon’s financial crisis began to take headlines in major newspapers, and since then, Lebanon has been cited as having suffered one of the worst financial crises in the world since the mid-1800s (Hubbard, Reference Hubbard2021).

Popular media reports have attributed the Lebanese financial crisis to clientelism and corruption among political and financial elites (Chaya, Reference Chaya2019; Rickards, Reference Rickards2020; Blair, Reference Blair2021). According to these accounts, the financial schemes of the elite led to the shortage in US dollar reserves at the Lebanese central bank. However, little attention was paid to how the system of dependency on US dollar reserves was established in the first place. This chapter aims to answer the question: How did Lebanon become so dependent on the US dollar? Exploring this question through an infrastructural gaze sheds light on the deeper colonial capitalist structures and embedded dependency relations that enable present-day inequalities.

2 An Infrastructural Perspective

Stemming from science and technology studies, the concept of infrastructure is used to highlight the ways in which seemingly technical devices and systems, such as roads and payment systems, are not neutral, but rather embedded in politics and power dynamics (Star, Reference Star1999; Larkin, Reference Larkin2013; Appel, Anand, and Gupta, Reference Appel, Anand, Gupta, Anand, Gupta and Appel2018; de Goede and Westermeier, Reference de Goede and Westermeier2022). Notably, post-colonial research found that infrastructures reinscribe power dynamics that were dominant at the time of their creation (Bear, Reference Bear2020; Sims, Reference Sims2021; Bernards, Reference Bernards2022). Therefore, in conceptualizing the central bank of Lebanon as an infrastructure, this chapter focuses not just on the physical building itself or the services it provides, but on the intertwined network of monetary policies and decrees it produces, the rationalities and motivations behind these policies, the monetary reserves and currencies it works with, the people who work there, and the political relations that influence its work.

This chapter aims to add to the insights gained in historical and sociological analyses of the case of Lebanon, which have found that the monetary system of Lebanon has never been sovereign because of the aligned interests of the political elites and dominant powers (Halabi and Boswall, Reference Halabi and Boswall2019; Safieddine, Reference Safieddine2019; Noe, Reference Noe2022). Economic trade relations between the mercantilist Lebanese and the French not only facilitated the infiltration of colonial capitalism in the region, but also the continued orientation towards financial policies which benefit both the colonial and mercantilist elites. Ever since the Ottoman Empire, Mount Lebanon was home to a group of mercantilist elite who benefited from specific trade in silk and other goods with the French (Gaspard, Reference Gaspard2004). Right after the end of the French colonial mandate, Lebanon was dubbed as the Merchant Republic (1950s–1960s), which Carolyn Gates describes as a time of extreme laissez faire (in Khater, Reference Khater2000, p. 569). Along with other researchers validating her findings, Gates attributes this phenomenon to a combination of historical conditions and trade relations between the mercantilist and French that also predated the colonial rule (Gaspard, Reference Gaspard2004).

The purpose of this chapter, however, is to show that the continuity of the influence of both the colonial and mercantilists is not only implicated through political and economic relations, but also through physical infrastructures. The central bank of Lebanon, which was mandated by the French, was designed under specific rationalities which continue to embody the bank today. To demonstrate this, I will use an infrastructural perspective to discuss Lebanon’s present-day monetary dependencies and to show how the dependency on the US dollar is a monetary policy sedimented in the Banque du Liban. I show this sedimentation by highlighting reoccurring patterns in the historical development of the central bank that were centred around colonial rationalities.

This chapter thus contributes to a theoretical discussion of the central bank of Lebanon which has not yet been discussed using an infrastructural gaze. To achieve this, I draw upon observations conducted during fieldwork in Lebanon in 2022,² and the extensive archival research conducted by historians, particularly Hicham Safieddine’s comprehensive studies on Lebanon’s financial history (Safieddine, Reference Safieddine2015, Reference Safieddine2019). First, I conceptualize the establishment of the central bank of Lebanon as a product of colonial rationalities. It was created under the auspices of the French colonial rule to monopolize their currency, to benefit their financial markets at the expense of local development, and to maintain control through debt relations. Secondly, I demonstrate how these colonial rationalities were sedimented, persisting as reoccurring patterns during the development of the bank, extending even after the official termination of the French colonial mandate. Consequently, I contend that these colonial rationalities have become ingrained in the central bank, maintaining foreign currency-dependency relations that continue to shape the contemporary financial landscape of Lebanon.

3 Sedimentation of Infrastructures

Today, central banks are the infrastructures that connect countries to the global financial system. However, the way in which they are connected differs from country to country. Eric Helleiner argues that central banking in colonized countries created dependencies on the economies and financial markets of colonial powers (Helleiner, Reference Helleiner2002a, Reference Helleiner2002b). Despite the end of the colonial rule, these dependencies continue to shape the financial markets of previously colonized countries today.

Conceptualizing the central bank of Lebanon as an infrastructure allows us to connect these past dependencies, created by colonial capitalism, to the present-day financial crisis. Infrastructures in socio-technical sciences are defined as an ‘amalgam of technical, administrative and financial techniques’ (Larkin, Reference Larkin2013, p. 330), and as a ‘relation between technology, space and power’ (Tribillon, Reference Tribillon2021, p. 40). Therefore, in addition to being systems that facilitate the circulation of things or people, infrastructures are also about knowledge, meaning, and power. In this section, I synthesize the literature that has used infrastructures to discuss the continuities of power relations throughout history. These researchers show that infrastructures are stubborn and difficult to change.

De Goede and Westermeier (Reference de Goede and Westermeier2022) use the concept ‘sedimentation’ to discuss how social and political relations are embedded in infrastructures over time. Sedimentation refers to the way in which historical power relations and dependencies become inscribed in the material structures of society, such as infrastructure. In his study on post-Apartheid South Africa, Edwards argues that the persistence of racial segregation is not enforced by separate facilities per se, but rather by automatic acts ingrained in habits and norms (Edwards, Reference Edwards, Kornberger, Bowker, Elyachar, Mennicken, Miller, Nucho and Pollock2019, p. 364). He finds that infrastructures are path dependent because they are shaped by historical, social, and technical factors that create durable and difficult-to-change configurations. Other research has also shown the stubbornness of infrastructure, whether it is fintech technologies replicating spatial inequalities in Kenya (Bernards, Reference Bernards2022), former colonizing countries acting as major payment hubs in global payment systems (de Goede and Westermeier, Reference de Goede and Westermeier2022), or contemporary railway developments utilizing colonial techniques of calculations of risk, state guarantees, and debt accounting in India (Bear, Reference Bear2020). In all this research, the continuities of colonial legacies through infrastructures are shown by highlighting the social conditions and rationalities that were dominant at the time of the creation and planning of infrastructures.

Building on this research, I show how colonial monetary rationalities are sedimented in the central bank of Lebanon. I use the concept of sedimentation as defined by de Goede and Westermeier (Reference de Goede and Westermeier2022) and conceptualize the colonial rationalities behind the initiation of the central bank of Lebanon as routes. Through a historical account of the development of the central bank, I find that these routes are inscribed and reinscribed at different times and in different social conditions. As such, in line with the purpose of this part of the book, using the case of Lebanon, this chapter responds to a call for more research on how histories and colonial relations continue to shape modern financial infrastructures (de Goede, Reference de Goede2021).

4 Colonial Rationalities of the Central Bank

In this section, I lay out the colonial rationalities under which the predecessor of the central bank of Lebanon, the Banque de Syrie et du Liban, was created. I argue that the Banque de Syrie et du Liban was mandated under the French rule to benefit the French colonial rule. I do this by showing that the bank was established under three colonial rationalities: to monopolize colonial currencies, to benefit colonial financial markets, and to uphold control over colonized regions. These rationalities can be seen in the goals and aims of the constitution of the colonial bank, and the historical events that influenced its development.

I conceptualize these rationalities as routes that were inscribed at the time of the creation of the Banque de Syrie et du Liban’s infrastructure. These routes were meant to lead to beneficial outcomes for the French monetary regime. The structuring of these monetary routes in this way was not unique to Lebanon. Helleiner (Reference Helleiner2002b) shows that colonial powers took care of their monetary expenses through restructuring the monetary regime of colonized countries in their favour (Helleiner, Reference Helleiner2002a, Reference Helleiner2002b). The first route was the creation of a currency dependency, by linking the local currency to the French franc, to monopolize the colonial currency in the region. The second route was the creation of monetary policies that were centred around de-regulation to benefit the French market rather than local development. The third route was the creation of debt relations to uphold control of the region.

5 ‘Decolonization’ of the Central Bank

Despite the suffering the French monetary system brought, it was not easy for the local governments to disconnect from the French financial rule. Even though Lebanon gained its independence in 1946, the French maintained their financial mandate until 1948 (Safieddine, Reference Safieddine2019). After negotiations in Paris with the local governments of Lebanon and Syria, the two independent states developed their own financial trajectories (Safieddine, Reference Safieddine2019; Daher, Reference Daher2022). In the case of Lebanon, I demonstrate how the development of the central bank, even after gaining independence in 1946, continued to be influenced by the colonial routes outlined in Section 4. This influence is evident, first, in the minimal central bank reforms in Lebanon following the end of the mandate and, secondly, in the fact that significant reforms were only initiated in 1964, under the influence of a new imperial power, namely, the United States.

6 Sedimentation of Colonial Rationalities in Lebanon’s Central Bank

The previous sections demonstrated how colonial routes inscribed in the predecessor of the Lebanese central bank have directed its development in certain ways. These colonial routes were originally only meant to benefit the French colonial powers. However, throughout history, shifting power dynamics have reinscribed these routes in different ways. Despite the shifting power dynamics, the development of the bank was directed towards currency dependency, financial de-regulation, and more debt relations.

These three routes are in fact intertwined with each other. By depending on foreign currencies, the central bank was constantly looking towards foreign markets to stabilize its currency. This meant that the central bank sought monetary policies that would benefit foreign investments. These policies first benefited the French market, then the financial and mercantilist elite, and later the Bretton Woods System. However, this meant that throughout history less attention was given to the development of agriculture and manufacturing. History has shown that these laissez-faire policies have contributed to exacerbating inequalities in the region (Gaspard, Reference Gaspard2004; Yassin, Reference Yassin2012; Safieddine, Reference Safieddine2015; Daher, Reference Daher2022). The combination of these inequalities with specific socio-political conditions have led to financial instability at different points in time. The debt relations acquired in times of financial crisis and instability also only leveraged foreign power. As seen in the debt conditionalities under the IMF financial order, integration in the world economy through financial de-regulation and stabilizing the currency with the US dollar peg were further encouraged.

As a result of these intertwined routes, the central bank of Lebanon has been directed towards hinging the local economy to the Western market in a way that is not beneficial nor sustainable for the local economy. Similarly, the colonial bank was meant to connect the local economy to the French one in a way that was not beneficial to the local economy either. Therefore, the rationale behind the establishment of the colonial predecessor of the central bank is still relevant to the way it functions today. As such, we cannot understand the financial crisis resulting from the policies of the central bank today without looking back at the rationalities behind its creation.

Research on post-colonial systems has argued that political independence from colonial rule does not necessarily mean economic or cultural independence. Power continues to be reproduced through the acquired know-how that has been passed on during the colonialism (Young, Reference Young2016). As such, decolonization in Gramscian terms only corresponds to a shift between political and civil societies. A ‘civil society’ is that which no longer requires physical control, but rather the ruling class operate in complicity with the needs of international benefit (Young, Reference Young2016, p. 45). As I have shown using the case of the central bank of Lebanon, infrastructures too are complicit in the continuity of colonial legacies.

This complicity is seen through the rationalities that are sedimented throughout the development of colonial infrastructures even after the alleged ‘decolonization’ process. I have shown this by conceptualizing colonial rationalities as routes that are inscribed in the infrastructure of the Banque de Syrie et du Liban. I found that these routes, which were meant to benefit the French market, continued to direct the bank towards foreign markets and dependencies. The sustenance of this model relied on the skills and know-how of the urban elite ‘and their long-standing relationship with the Western market system’ (Yassin, Reference Yassin2012, p. 68). As such, the development of the Banque du Liban through its colonial routes was not only familiar but also favourable for the urban financial elite of Beirut. The Banque du Liban’s development continued to serve the interests of the ruling elites, both through its policies and through its colonial, and later US, connections. Thus, even though there were changes in the shift of power after ‘decolonization’, the financial infrastructure continued to function under the rationalities that created it.

7 Conclusion

As Bernards (Reference Bernards2022) points out, while colonial infrastructures are durable it does not mean that they necessarily determine the present or future. For that reason, it is important to bring to view the ways in which infrastructures develop over time alongside shifting power dynamics. By recounting the social conditions and rationalities behind the development of the central bank of Lebanon, I showed the reoccurring patterns over time. As such, I argued that colonial rationalities are inscribed in the central bank, dictating it in a certain direction. Through currency dependency, monetary development, and debt relations, the Banque du Liban became hinged on foreign financial infrastructures.

As shown in the research on global financial infrastructures, without banking relations with major banks it becomes almost impossible to reliably transfer money to the Global South. This can result in the economic isolation of countries that are targeted by nationwide sanctions, such as Venezuela, Iran, and Syria (de Goede, Reference de Goede2011; Daher and Moret, Reference Daher and Moret2020; Brandl and Dieterich, Reference Brandl and Dieterich2021). While Lebanon’s economy was not isolated, financial restrictions and a decrease in foreign financial flows to the country did bring about a complete financial collapse. In Lebanon, the harm of financial restrictions was indirect, by impacting access to foreign currency, which in turn limited access to basic resources. The shortage in the US dollar reserves led to a complete collapse of the financial infrastructure in Lebanon, compounding the collapse of other infrastructures and shortages such as electricity, water, and fuel, and thus depriving most of the local population of basic needs and public utilities.

In conclusion, journeying through Lebanon’s financial history using an infrastructural lens shows us the persistence of colonial rationalities in shaping the present. Years of foreign currency dependency has casted a shadow over Lebanon in 2020. Much like the OMT billboard stood as a familiar landmark in the midst of darkness, it serves as a metaphor for the reoccurring theme of reliance on foreign currency to rescue Lebanon from the abyss. The money-transfer advertisement promises that foreign transactions in US dollar will be there for citizens ‘in all circumstances’. The reliance on foreign currency as a lifeline in times of crisis is ingrained in the very fabric of Banque du Liban and mirrors the historical pattern of dependence that has perpetuated itself over time. These dependencies cannot be solely attributed to local actors but are deeply ingrained in old and emerging infrastructures, reinforcing financial relations that favour dominant powers.