Australasian Science: Australia's authority on science since 1938

Following the Money Trail

By Stephen Luntz

Astrophysics and banking have a lot more in common than you’d ever imagine.

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If the Global Financial Crisis made you think that most economists have no idea whether our banking systems are stable or not, do not despair. Hope may be at hand, but it comes not from economists but from physicists.

Dr Andrey Sokolov was awarded his doctorate for studies of the jets from supermassive black holes at the centres of galaxies. However, he’s now doing a second PhD thesis on the stability of the Australian banking system. The results are far from complete, but an initial paper was published last year in The European Physical Journal.

“We’re not trying to model the whole economy,” Sokolov says. “That’s an impossible problem.” Consequently he doesn’t think his research would have been able to prevent something as large as the global financial crisis. Instead he is looking at the flow of money between the Reserve Bank of Australia (RBA), 54 Australian banks and overseas financial institutions.

The research only looks at these large-scale immediate interactions, not the small consumers frustrated by debits appearing in their account immediately while credits take days.

“When you look at a dynamical system,” Sokolov says, “you could have a different types of behaviour. It could be in equilibrium, or cyclical, or it could be unstable; that is, it could grow or decline to zero.”

One of the goals was to set up a simulation to...

The full text of this article can be purchased from Informit.