Hawala –

the Kolkata Libertarian Suman Palit is doing an in-depth examination of the Hawala system for transferring money:

If one removes the anti-terror-fighting blinkers, the basic rules of hawala, mixed with the transperancy and legal backing of current western banking systems, is what free-market based international finance should be. It liberates the little guys, the classic Mom & Pop operations, the innumerable SBOs, from the stifling hand of over-regulation.

In other words, hawala is off-the-books and outside government control, which is normally good, but in the case of financing terrorism, probably not so good. What’s not clear about the hawala system, to mine own self, is to what extent it actually serves to finance terrorism in the first place, since there seems to be evidence that the conventional banking system is the tool of choice for moving large sums of money around, and to what extent hawala is a reaction to banking regulation vs. a predecessor of the modern banking system. Islam has a weird attitude toward banks because it prohibits usury, or the charging of interest for loans. Since this rule, taken literally, effectively prevents the formation of a modern, capitalist economy, a bypass had to be built to allow Islamic countries to do business. Hawala is probably part of that bypass.

So I would assume that it’s not possible to stamp-out hawala, but it’s easy to overstate its importance since its ability to transfer funds is limited by the liquidity of hawaladars, which is probably not all that great.

It’s wonderful, of course, to witness the foaming-at-the-mouth reaction of politicians to a system of commerce they’re utterly incapable of controlling.