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Khafagy, Amr (2025) The concrete function of the banking system: Samir Amin’s monetary theory of financial underdevelopment. Cambridge Journal of Economics. ISSN Online ISSN 1464-3545 Print ISSN 0309-166X (In Press)
Building on Samir Amin’s monetary theory, this paper argues that the underdevelopment of banking systems in peripheral economies is not merely the result of institutional inefficiencies or market failures but is deeply rooted in structural constraints. These constraints, such as insufficient production capacity and limited foreign exchange reserves, significantly limit the ability of banks to inject credit into the economy. Within this constrained capacity to extend credit, the concrete function of the banking sector is fundamentally distributional. Banks allocate scarce financial resources among sectors that foster capital accumulation instead of local development. Drawing on empirical evidence from Egypt, the paper demonstrates that credit to the private sector is heavily dependent on industrial growth and the availability of foreign exchange reserves. Furthermore, persistent fiscal deficits have exacerbated the already concentrated credit market, channelling limited financial resources toward recurrent public expenditures rather than capital investments, thereby weakening the industrial capacity of the economy.
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