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Imagine a coordinated attack by a large and motivated hacking group, that results in a nation-level compromise of the financial systems we take for granted: credit card payments, accounts at the top banks, the ACH system etc.

Funds become frozen, and so do individuals and corporations, financially. Illicit transactions remain uncorrected until trust can be re-established. Digital trust, on which a staggering amount of our modern society's functioning is based, drops to near-zero levels.

Can we prevent total chaos? If not, how could our society recover?

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A crucial flaw in a widely-relied upon method of encryption might be more realistic. Perhaps the reveal of a government-mandated backdoor, or an abrupt breakthrough in quantum computing equipment. – Wingman4l7 Feb 19 at 11:24
"Imagine a coordinated attack by a large and motivated hacking group, that results in a nation-level compromise of the financial systems we take for granted" - otherwise known as our current wonderfully tech-savvy government, here in the UK. – Whelkaholism Feb 19 at 11:39
Oops, spelt "woefully" wrong. – Whelkaholism Feb 19 at 11:39
Bine ai venit pe site! – AndreiROM Feb 19 at 14:31

In the very short term you may see activities similar to those already used by banks during major outages.

  • greater powers to branch staff to allow small payouts to known/regular customers without electronic confirmation
  • raising of those small limits
  • inter-bank couriers with cash and payment orders
  • etc

Trust relationships are relatively straightforward to reinstate: you work through trusted individuals, and banking does have a good peer relationship network in addition to government facilitated communications.

The return to business will rely on rebuilding to known good platforms, so organisations that can do that for key services within hours will be in the strongest place.

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Nation level is interesting - that suggests that the rest of the world is still able to function, to some extent, whilst within the targeted nation the financial system is in complete collapse.

I think a lot of it would depend on the specific nation though:

  • United Kingdom - London is disproportionately powerful in financial terms, which means that a whole lot of people are heavily involved in financial trading. This sector would collapse without digital support, especially if other nations are able to take up the slack, although the global nature of a lot of these high level transactions would cause knock on effects across the rest of the world. Small villages and towns cope somewhat better - there are several schemes where regional "currencies", linked to the Pound are in use, and these could relatively easily expand. They tend to aim to keep money within the local area, and cash transactions are essentially unaffected.

    Cities and large towns, which are more reliant on national or international businesses are hit harder. Due to the daily requirements of life, people in these areas are more likely to operate "cashless" - using card payments, mobile phone payments, and electronically controlled transport payment systems. Without the banking systems working, they effectively have no way to obtain funds, even if they were previously fairly well off financially. City dwellers also tend to have less contact with neighbours, so may feel less able to approach others for trades of useful goods (e.g. vegetables grown in gardens or similar).

  • USA - This is essentially one of the scenarios "preppers" prep for, so in areas where large numbers of people are prepping, there is likely to be resigned acceptance. The USA is even more biased towards city living than the UK in many regions, so suffers similarly to the UK. There are also various areas where there are closed economies which don't intersect particularly with large finance - immigrant communities where most money circulates within a fixed group, as with the regional currencies in the UK.

  • Somalia - Somalia doesn't really have a financial sector, and most payments, even large ones, are cash based, due to lack of trust in banking systems in a country with a barely functional government. Essentially, life goes on - hardly anyone notices.

  • China - Large financial sector, which is likely to collapse, but also a very controlling government, relative to the UK (in theory), which has a lot more say in how businesses within the country work. In theory, it would be able to enforce cash transactions for day-to-day life, and then work to support critical businesses. This might involve military law, enforcing work in return for basics of living such as food and shelter, or a wholesale return to communist ideals.

  • North Korea - No difference for most people, with the rulers being the only ones affected.

  • Switzerland - It's essentially a country of London. Collapse.

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Actually, maybe I was wrong about Somalia:… – Matthew Feb 28 at 19:49

A major hacking compromise would not result in all funds becoming frozen - while a financial institution may freeze most of its operations (especially if some state of emergency is legally declared) until it gets some recovery done, it will be able to handle any transactions that it deems sufficiently important in the same manner as in their "usual" disaster recovery procedures on how to do (some of) work based on paper if i.e. the IT systems are completely unavailable due to communications or power outages or some other issues.

That wouldn't work on all or even most transactions, but it would be quite feasible to arrange, for example, that all your corporate customers get deliveries of cash for paying out salaries simply based on existing legal agreements (in paper files) even if no account information is available or trustworthy.

Such backup procedures also exist for any serious transaction system - for example, some years ago I worked on a (non-US) ACH-like system and we had clear pre-arranged business contingency procedures that would also work without any digital trust by exchanging paper documents - it would be rather expensive and labour intensive, but it would work and allow for partial recovery (i.e., not the full number of transactions, but including all the larger and the more important ones) within hours assuming that there's not some other disaster that doesn't allow you to communicate with your employees, or move people/couriers around the city.

A more realistic effect would be an immediate credit crunch as every institution is afraid about other institutions liquidity and solvency - similar to immediate aftermath of the Lehman Brothers collapse. It would result in an economic crisis and hurt a lot of businesses, but it wouldn't result in stopping economics or destroying a lot of businesses.

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I, for one, welcome our new BitCoin overlords, and would like to remind them that I can be helpful in rounding up others to toil in their crypto mining pools.

That's only slightly glib, in that what you're asking about has happened to varying degrees in various countries around the world, both historically and in modern times. Your scenario is fundamentally the same as other historical financial system and governmental collapses, only with the slight variation that it's an electronic financial system.

The classic textbook example of a total financial collapse is hyperinflation in the Weimar Republic during the interwar period. The Weimar Germans had it especially bad because they really didn't have any options other than using the worthless paper currency, which by the end was being burned for heat, used as wallpaper, and generally used as anything but currency.

The best modern example of a total financial system collapse is Zimbabwe, 1990's through 2015. (Zimbabwe's peak month of inflation is estimated at 79.6 billion percent in mid-November 2008, which works out to 30,700% inflation per second), and they still... exist, and in largely the same horrible mess they've always been in. A far cry from total chaos or a societal collapse. When a financial system collapses, people just use something else as currency, and ultimately the result is that the government-issued currency becomes completely useless, is not used, is no longer printed, and people standardize on something or somethings else to use as currency. Maybe, long term, the government is able to re-establish government-backed fiat currency, but if not, and until they do, people rely on other nations' currencies, and traditional "value stores" like gold.

The current situation in Argentina, post-Chavez is instructive, as it is likely similar to what we could expect from your scenario for any given society, not counting any international economic repercussions or fallout. Bad, painful, but far from total chaos. Society doesn't collapse. Argentinians now are using currencies from other countries and commodities like gold as currency, rather than untrusted, mostly useless state currency. (Even with the government largely criminalizing the use of foreign currency and mandating obscenely bad official exchange rates.)

Someone or something destroys the financial world every 10 to 15 years, but we recover and carry on every time anyway. Most recently, it was the sub-prime mortgage fiasco that wiped out tens of trillions of dollars from the US economy. Before that it was the dot com bubble bursting. (Twice, actually, late 90's and again in the early 2000's). Before that it was the banking collapse in the 80's, before that the OPEC embargo of the 70's, and so on, probably going all the way back to the beginning of history or so.

Every decade or so the world gets destroyed, and every time we recover, rebuild, and prepare to do it all over again.

So, let's pick the US for our total financial collapse, as it's probably the worst case for global implications and repercussions as far as how financial collapse in a single country would ripple out to the rest of the world. Frankly, it doesn't make much difference how it happens... whether it's hackers, war or invisible pink unicorns, recovery looks basically the same, and it's basically the same thing that happened when banksters destroyed the world 8 years ago, dot com companies and moron financial analysts destroyed it before that, and so on.

In what ended up being massively longer than I'd like, you can see my analysis of what implications a US financial system collapse would have, below, and there's simply nothing there that's unprecedented. It's all stuff we've survived in the past, so I see no reason that we wouldn't survive it again.

  1. US dollars become worthless. This is brutally painful for Americans and wipes out tens of trillions of dollars worth of wealth in America alone, the American economy sinks further and faster than it did in the Great Depression. Within the US, this creates a societal reordering, rather than a societal collapse. The current wealthy elite whose fortunes are based on the newly worthless US financial system and fiat currency go from billionaire to broke overnight. (Just as happened in the Great Depression and the Black Tuesday 1929 stock market crash.) People fortunate enough to have substantial holdings of what replaces USD become the new wealthy elite. At this time, replacements for USD would likely be precious metals commodities (gold in particular), GBP or Euros, and people with significant numbers of blockchain-based crypto currency (BitCoins, LiteCoins, etc). The existence and current semi-accepted state of crypto currency is a new phenomenon, yet it's all but guaranteed that crypto currency will be a significantly dominant replacement for whatever government-backed currency gets wiped out in any future financial collapse - it has all the advantages of government-backed, fiat currency (and some significant advantages fiat currency doesn't), but most significantly for a financial collapse situation, is completely unrelated to the current financial system or government fiat currency.

  2. Countries that are major global trading partners with the US suffer severe economic destruction as collateral damage from the US financial collapse, of course. Countries who use US dollars as a defacto currency will be similarly devastated, and find themselves turning to similar replacement currencies as seen in the US. Countries that peg their currencies to a rate based on US currencies experience a brief and unpleasant currency correction shock, but are not too bad off. Even the countries that artificially suppresses or elevate their own currency evaluation via this USD linkage don't suffer significant long-term repercussions, since they just switch to pegging against the Euro instead.

  3. China would end up suffering almost as much economic damage as America in the most optimistic analysis, with a significant chance of ending up suffering even more from a US financial system collapse than the US would. China owns massive amounts of American private and sovereign bonds (debt), which is now all gone. Use of monetary policy and a pegging of the Yuan to USD at an artificially low rate has historically created large economic growth based on exports to the US, at a cost of making the Chinese economy dependent on those exports. The US financial collapse wipes out US demand for Chinese goods, dragging down the Chinese economy with it. The massive loss of wealth for both Chinese companies and government from newly worthless US debt causes panicked stock sales on a large scale. The Chinese stock market is currently heavily artificially inflated by the Chinese state, which no longer has the ability to continue the charade. The Chinese suffer a market crash as bad as, or worse than, the Black Tuesday market crash of 1929 in the US. Existing concerns about overstatement of Chinese economic growth by their state agencies amplify the stock market crash and result in Chinese economic contraction on a scale not seen in major economies since the Great Depression. State controls on the Chinese economy go into overdrive, in an attempt to prevent total economic collapse, but fail, because the foundations of the Chinese economy (ownership of US debt, exports to the US at highly favorable currency rates, an artificially inflated stock market) have been ripped down by the US financial collapse. There is a significant possibility that expensive, mostly empty cities built by state planners will need to emptied back into the rural areas as a result of the economic collapse, in a reverse-flow replay of the Mao-era "Great Leaps Forward". This would have the effect of collapsing real estate prices, which would further exacerbate the economic and stock market crashes. China likely has no possible short term solution or mitigation to their economic implosion.

  4. The EU and non-EU European countries go into economic depression, but not devastatingly so. Like everyone else, China and the US comprise a significant part of their economies, but not enough to risk financial or societal collapse as a result. Other "1st world"/"industrialized"/well-off countries outside of the EU (South Korea, Japan, Australia, etc.) end up in a similar boat as the EU, with varying levels of economic depression and wealth destruction as a result of the collapses in the US and China that comprise a significant part of their economies. All these economies will be growing again inside 2 or 3 years.

  5. India gets hit a bit worse in absolute terms than the EU and "industrialized" countries, due to their industrialization efforts being financed significantly by the US and China, as well as the loss of those markets for their good and services. In relative terms, the collapse of China is advantageous to them. India supplants China as the world's largest, fastest growing "developing" economy. With China's economy in ruins, India is now the country that will emerge as the world's next military and economic superpower. Brazil is in a similar position to India economically. In absolute terms, things are a bit worse for them, in relative terms, China's fall means that Brazil joins India and Japan in the top 5 world economies, when counting the EU as a single economy. (EU - #1, US - #2 probably, #3 possibly, Japan - #2 or #3, India - #4 or #5, Brazil #5 or #4. China probably drops to #6, followed by Russia in #7.)

  6. Africa, Russia, and Central and South America are hit hard by the collapse of China and/or America, and the resulting loss of trading partners, investment dollars and/or foreign aid/financial loans, but they're all economic disaster areas anyway, so relatively speaking, the world doesn't look too much different to them.

  7. The impact on the Middle East and the OPEC oil producing countries is highly variable, depending on which specific country you look at. Oil is still in high demand. The devastated US and Chinese and depressed EU economy sees global demand for oil drop 20 to 35%, but this is not crippling to most OPEC countries. Middle Eastern countries that are warzones or otherwise have no functional government control remain as disaster zones. ISIS likely tries expand, forcing direct military action by Israel and Turkey, in conjunction with any governments currently left standing in the area. Similar dynamic for the other Islamist groups operating in failed-state regions of the Middle East. As the two stable powers remaining in the region, Israel and Turkey likely expand their political and military influence accordingly. The House of Saud falls to internal parties or external forces who set up local puppets, as the US is no longer able to prop them up. Probable fractured-state or failed-state dynamic in the Arabian peninsula as a result.

  8. Decreased global oil demand hurts Iran more than most. With US and European influence and force projection capabilities in the region severely hampered, there a strong possibility of multiple flashpoints between Iran and any standing Sunni Arab states, Iran and Israel as well as Iran and Pakistan. If so, India looks to exert influence on its periphery against Iran, possibly warming Indian-Pakistani relations. North Korea collapses with the loss of their Chinese patron, resulting in several million starvation deaths in the first year. Korean unification under South Korea likely, after bloody failed-state dynamic in North Korea, as DPRK military fails to maintain control with Chinese patronage. Probable cooperation between South Korea and Japan substantially warms relations between the two.

So... a lot people are ruined, a lot of people die, some countries get wiped off the map or split into pieces. Alliances shift, wars and insurrections occur. Underneath it all, normal people keep doing what they have to do as best they can do it to survive and put food on their table. AKA, the whole history of the world since the dawn of time or so.

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great answer! you really covered every aspect of the question! – fi12 Feb 20 at 13:01

Revision to more traditional means of commerce would follow such a catastrophe. In societies with traditional trust mechanisms, these would come back as the default, for example traditional Chinese culture is based on trust within the family unit, while American society trust is based on "being a man of your word".

So many projects, corporations and even units of government would devolve to meet the requirements of the basic "trust units". Things would become much smaller, and while small projects could go quickly, larger projects would have to be either recast as collections of small units with interfaces between trusted people, be forced to move much more slowly as physical meetings and "sneakernet" connections are arranged or simply abandoned altogether.

Governments would become much more important and perhaps powerful at the municipal and town levels, while administrative units like Provinces and States become less so, and national level governments become stripped of many of their powers by default, as people refuse to deal with them over the trust issue. Even internal government functions will become difficult to impossible as bureaucracies internal functions are slowed or severed due to lack of trust (and endless committee meetings and movement of bureaucrats will paralyze whatever functioning is left).

There is obviously going to be major attempts by governments and bureaucrats to attempt to keep their existing perques and power, by force if necessary, but the same trust mechanisms which allowed the expansion of modern commerce and industry also underly the ability of large governments and the Administrative state to function. While it might be easy to call out the Army to suppress an area, if the soldiers cannot be paid, they are not going to be as inclined to follow orders. Populations dependent of government welfare like food stamps will also be uncontrollable if their benefits are not being provided.

So an overall reordering of society into smaller units which can provide internal trust and communications between trusted members is going to be the result of this catastrophe.

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By using physical documents, couriers and face-to-face meetings (aka the sneakernet). This would slow things down considerably, as meetings would have to be arranged, and documents/couriers vetted. However, most of these transactions could have time limits applied: if the courier does not arrive within a certain amount of time, the transaction is rolled back by default.

A side-effect is possibly faster transmission, especially for very large files (never underestimate the bandwidth of a station wagon full of USB drives).

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1 – Ellesedil Feb 19 at 19:28

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