The digestive system of the human body is made up of the mouth, which takes in food that journeys through the throat and esophagus into the stomach. The stomach retains the food and applies stomach enzymes to it. The semi-processed food from the stomach is then sent to the small intestine. The small intestine breaks down food using enzymes. Nutrients from processed food are sent from the small intestine to the blood. The left-over food from the small intestine is moved to the large intestine. After some biological processes, the leftover is sent to the anus, which deposits the residue outside the body.
The International Financial System (“IFS”), in the context of this paper, has a digestive system with these vital components:
❖ MOUTH — Shadow Banking System and Traditional Banking System
❖ THROAT AND ESOPHAGUS — Financial Instruments and Financial Transactions
❖ STOMACH — Commercial Banks
❖ SMALL INTESTINE — Financial Services and Activities of Commercial Banks
❖ LARGE INTESTINE — Central Banks
❖ ANUS — Converts foreign currencies to the global reserve currency (the United States dollar), and "defecates" it into the global reserve
The financial mouth of the IFS digestive system is both the shadow and traditional banking systems. These banking systems are the only source of credit access into the IFS.
The throat and esophagus constitute the pathway connecting the mouth to the stomach. Financial instruments and transactions serve as the financial throat and esophagus because they are the conduit through which credit (financial food) enters into the IFS.
The throat and esophagus drive the food into the stomach. Hence, financial instruments and transactions drive credit into the financial stomach. Here, commercial banks serve as the financial stomach. Commercial banks house the credits coming in from the shadow and traditional banking systems. As the credit reaches the commercial banks (stomach), acid and enzymes are secreted on the credit to further facilitate the digestive process. The acid and enzymes could be analogized to regulatory requirements that banks are obliged to fulfill, such as filing and reporting requirements, and in-house administrative processes. After the financial enzymes are secreted—that is regulatory and in-house administrative requirements have been satisfied—the semi-processed credit is sent to the small intestine.
The commercial banks through various financial services and activities (market and non-market) continue the process of breaking down the credit (financial food) in the small intestine. In the small intestinal stage, the commercial banks disperse the fully-processed nutrients obtained from the credit to the IFS, in the form of loans to domestic corporations and individuals, by purchasing issued bonds of international financial institutions and sovereign nations, and conforming to reserve requirements for liquidity purposes. Any left-over or unutilized credit from the small intestinal process may be sent to the global reserve.
The excess or unutilized credit from the small intestinal process is sent to the large intestine. The function of the large intestine is to forward the unutilized credit to the anus, which then pushes it outside. Central banks play the role of the financial large intestine. Central banks receive the excess or unutilized credit from commercial banks and could further send some or all to the global reserve. The financial anus is where the currency is converted to the United States dollar (the global reserve currency), prior to being pushed out into the global reserve. Thus, the financial anus re-structures the credit by converting it to the global reserve currency, which then enables it to be “defecated” or deposited into the global reserve.
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BIBLIOGRAPHY
Structure & Function of the Digestive System: How it works, CLEVELAND CLINIC (Sept. 13, 2018), https://my.clevelandclinic.org/health/articles/7041-the-structure-and-function-of-the-digestive-system.
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