How Trust and Innovation Kept the Economy Running Without Banks
TL;DR
During the 1970 Ireland bank strike, banks were closed for six months, but the Irish people managed to sustain the economy by using checks as cash substitutes. Local businesses, especially pubs, served as intermediaries, and a system of mutual trust and informal credit allowed transactions to continue. When banks reopened, most checks were honored, proving the success of this temporary economic model.
Executive Summary
The 1970 Ireland bank strike represents a unique period in economic history when a modern economy functioned without access to formal banking. The strike, which lasted six months, closed all major banks across the country. Despite this, the Irish economy continued to operate as people and businesses created a trust-based system, using checks as cash substitutes. Local pubs, shops, and social networks became the backbone of this informal economy, allowing transactions to flow despite the absence of formal banking infrastructure. The strike demonstrated the resilience and adaptability of Irish society, and when banks reopened, the majority of these checks cleared smoothly. This article explores the causes of the strike, the mechanics of the trust-based system, and the insights it offers into human adaptability in economic crises.
Introduction: Setting the Stage for a National Disruption
In 1970, Ireland faced an unprecedented situation that challenged the norms of economic life. Between May and November, bank workers went on strike over wages and working conditions, shutting down the country’s main banks, including the Bank of Ireland and Allied Irish Banks. This six-month disruption left Ireland without access to banking services, including cash withdrawals, deposits, and check clearances.
At the time, most of Ireland’s financial transactions were handled through these commercial banks, making the strike a severe economic threat. Observers predicted widespread financial chaos and hardship. Remarkably, however, Ireland’s economy adapted, surviving without banks for six months through an improvised, decentralized system of trust and informal credit. This article examines the causes of the strike, how this trust-based economy operated, and how society adapted during this extraordinary period.
The Cause of the 1970 Ireland Bank Strike: A Long-Standing Labor Dispute
The strike began on May 1, 1970, following a breakdown in negotiations between the banks and their employees’ union. The main points of contention included demands for higher wages and improved working conditions, as well as broader frustrations among bank workers over lack of job security and benefits. After negotiations stalled, workers walked out, leading to the closure of most major banks.
Initially, the public and government expected the strike to be brief. However, it dragged on as both the banks and the union refused to back down. As the weeks turned into months, Ireland faced the reality of functioning without the formal banking infrastructure on which it depended.
How Did the Public Adapt Without Banks?
1. Checks as a Substitute for Cash
With no access to cash withdrawals or deposits, individuals and businesses began to use checks as a replacement for currency. In an era where cash was the main form of payment, this shift was significant. People wrote checks for daily purchases, services, and even wages. These checks weren’t cashed but were instead passed from person to person, effectively becoming a form of “social currency.” Since they couldn’t be immediately redeemed, checks operated more like IOUs, with the promise that they would eventually be honored when banks reopened.
2. Local Businesses as Payment Hubs
To keep commerce flowing, local pubs and shops took on an essential role as informal financial hubs. Pubs in particular became central, as they were well-known gathering places where people trusted the owner. Pub owners, who knew their regular customers and their financial reliability, would accept checks as payment and then pass them along to suppliers or local residents. This trust network allowed checks to circulate within local economies, with each participant assuming that others would eventually honor them.
Shops and small businesses also began accepting checks based on familiarity and reputation. Owners of these establishments maintained informal records of customers’ check transactions, and in smaller communities, these businesses effectively became the “banks,” recording who had issued checks and to whom. This process relied heavily on personal trust and community reputation, creating a makeshift credit system based on social networks.
3. The Role of Reputation and Trust
The makeshift system relied on a unique form of creditworthiness—personal reputation. In small Irish communities, social ties were strong, and people often knew one another well. A person’s reputation and reliability became their “credit score,” determining whether a check would be accepted. Trusted individuals could freely circulate checks as currency, while others who were less known or reliable faced greater challenges in using checks as payment.
The Mechanics of the Trust-Based Credit System
1. Circulation of Checks Within Local Economies
Checks became a common medium of exchange, circulating within local communities. When a person wrote a check, it often changed hands several times, moving through a chain of transactions before returning to the original writer. For example, a check written to a grocer could be passed on to the grocer’s supplier, then to another business owner, and so on. This continuous circulation was essential in preventing economic stagnation, as it allowed value to flow through the community without the need for cash.
2. Ledgers and Record-Keeping by Businesses
Some businesses, particularly larger shops, maintained ledgers to track these exchanges. Rather than cashing checks, they recorded each transaction, ensuring they had a record of who owed what. These ledgers served as informal “bank books,” providing a rough accounting system that helped manage the risk of default. These records also provided a level of security, as business owners could track their check transactions and hold clients accountable if necessary.
3. Pubs and Social Gatherings as Financial Centers
Pubs played a particularly influential role, not only as venues for check circulation but also as places for establishing and reinforcing trust. People would often meet at pubs to discuss transactions, and pub owners—seen as reliable intermediaries—served as gatekeepers. Their knowledge of local customers and their habits made pub owners a de facto credit authority, as they could assess individuals’ reliability and facilitate exchanges.
In effect, the Irish adapted a highly personalized credit system, where one’s standing within the community directly impacted their economic freedom. Trustworthiness was reinforced by social accountability, as individuals had a strong incentive to honor their commitments to avoid social stigma or exclusion from the informal economy.
The Return of Banks and the Aftermath
1. Clearing the Backlog of Checks
When the 1970 Ireland bank strike ended in November, banks reopened to find an overwhelming backlog of checks waiting to be cleared. While there were concerns that many checks would bounce due to lack of funds, the majority of checks were honored without issue. This was due in part to the trust that had been established in local communities—those who had issued checks generally made good on them to maintain their reputation.
The Central Bank estimated that most of the checks in circulation cleared without significant problems. This smooth clearing process surprised many and illustrated the robustness of the informal system that had taken shape.
2. Reintegration of Formal Banking
The return of formal banking services brought relief to those who were eager to resume traditional financial operations. Businesses gradually transitioned back to using cash, bank checks, and accounts as primary methods of transaction. However, the informal credit networks built during the strike left a lasting impact on local communities. People had witnessed the power of trust and social capital in maintaining economic stability, and this experience reshaped their understanding of financial resilience.
3. Lessons Learned from the Strike
The 1970 Ireland bank strike demonstrated the resilience and adaptability of the Irish economy. It showed that in the absence of formal institutions, communities could rely on social networks and trust to sustain economic activity. This period also revealed the potential for alternative forms of currency and credit in maintaining economic continuity, even in the face of institutional disruption. For economists and historians, the strike became a case study of how economies can function without centralized financial systems.
Conclusion
The Ireland bank strike of 1970 remains a remarkable example of economic resilience, adaptability, and the power of social trust. Faced with a nationwide shutdown of banking services, Irish people found creative ways to keep transactions flowing, using checks as a substitute for cash and relying on personal reputation as a form of credit. Local businesses, especially pubs, became informal financial hubs, facilitating exchanges and maintaining records in the absence of formal banking.
When the banks reopened, the majority of checks cleared without issue, validating the trust-based system that had sustained the economy. The strike ultimately highlighted the strength of social networks and local reputation as drivers of economic continuity, proving that communities can, in extraordinary circumstances, create and sustain an economy based on trust alone.
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This page was last updated on November 29, 2024.
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