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Can Solar Flares Disrupt The Financial System?

Space is considered the void of the unknown, which holds a kaleidoscope of possibilities. The enigma of the night sky, and what lies beyond, baffles people and has ignited ponder for Millenia. Astronomers have scoured the night sky to extract meaning, sailors have used constellation to navigate, and people look above to reflect on one’s own existence. Space is home to creation and destruction on a cosmic scale, where bodies of gas operate on foreign physical principles that we are trying to understand. Can the solar flares in combination with evolutionary steps of banks and digitalization lead to a tragedy and disrupt the whole financial system?

Earth revolves around the Sun, which provides the conditions imperative for our survival. Our days operate around the sun, our years revolve around the orbit. Our society is founded upon the sun, the same society that created banks. As the evolutionary steps of banks has led us to digitalization, the sun poses a threat. 

What Is So Special About Solar Flares?

Solar flares are when the sun expels radiation. The atmosphere of the sun generates strong winds, and large occasional bursts of radiation, in the form of UV and X-ray, alongside electrified charged gas and magnetic fields.

What happens with magnetized plasma that collides?

The sun ejects magnetized plasma regularly, due to the currents at the surface. Coronal mass ejections (CMEs) occur twenty times per week, and each travels at an 11 million kilometer per hour speed. The size of these vary, and the chances of hitting Earth, within its specific orbit are low. However, if they collide, they can disrupt the entire technological system, rendering digital information and banking obsolete.

Solar Flare Disrupting The Technology In 1859

In 1859 there was a solar flare, which disrupted the technology at the time, the telegraph system. Often referred to as the ‘Carrington Event’, the telegraph network all over the world was knocked out for two days. However, civilization was not heavily reliant on electricity at the time.

How Catastrophic Would A Solar Flare Be Now?

Due to our incredible technological development since the 1800s, a solar flare would be catastrophic, since technology is so embedded in society. David Wade, at Atrium Space Insurance Consortium, said “We’re getting ever more reliant on technology – digital electronics, the internet, navigation services – and a really severe space weather event could disrupt all of those things. I think one of the big questions is how are people taking this because we see these problems so infrequently

How Would Solar Flares Impact The Financial System?

Financial systems, such as investment and retail banks, DeFi, cryptocurrencies, currency exchanges, insurance companies, investment funds, all entirely rely on systems that are susceptible to these space disturbances. Banks operate digitally. Some financial systems require a constant power supply, such as stock, share, and cryptocurrency exchange markets, due to timing.

Conventional risks to disrupting the fintech industry revolve around consumer behavior, fluctuating share prices, interest rates, price bubbles, and the sort. Numbers appear on a screen, within a cloud system, which determines what your wealth is. It is merely a digital number in which the bank tracks your transactions and accounts for credits and debits. In the event of a solar flare, technological systems have the ability to be halted and even wiped.

Is Solar Flare Inevitable?

A 2013 report from Lloyd’s of London and Atmospheric Environmental Research, outlined that a similar magnitude solar flare was “almost inevitable”, as the extreme storms occur on a cyclical 150 year time period.

The report outlined $600 billion to $2.6 trillion potential loss, and stated: “If businesses, public services, and households are without power for sustained periods of time, insurers could be exposed to significant business interruption claims, particularly as backup supplies are only likely to last for a limited period”. Richard Quinn, vice president of the space weather at AER, enforces this by adding “The biggest potential impact is to the electrical grid, and there have been studies that said if we had a Carrington level event it could cause major transformers to be damaged and we could be looking at weeks or months of blackouts”.

A Large CME Expulsion Of 2012

On 23 July 2012, there was a large CME expulsion released by the sun, but Earth was conveniently out of orbit. If the CME occurred seven days prior, it would have directly hit the Earth. Daniel Baker from NASA estimated a 12% probability that another Carrington Event would occur in the next decade. Earth experienced a geomagnetic storm in 1989 which directly caused the Hydro electrical grid in Quebec to fluctuate dramatically. The entire system shut down in under two minutes, leaving millions of people without power, causing a $6 billion CAN economic loss.

Similar devastation could be caused if an electromagnetic pulse (EMP) event occurred. EMP is released if a nuclear device is detonated hundreds of kilometers above the Earth, which is becoming a possibility in terms of terrorist activity. According to US EMP Commission reports of 2004 and 2008, an EMP event could cause large scale power grid and communication system failures, potentially causing the death of up to 90% of the population within 12 months.

The reports outlined that “terrorists or state actors that possess relatively unsophisticated missiles armed with nuclear weapons may well calculate that, instead of destroying a city or a military base, they may gain the greatest political-military utility from one or a few such weapons by using them—or threatening their use—in an EMP attack”. Multiple nations have the ability to cause such devastation, which is only going to grow. 

Is There A Point To Prepare For Irregular Events?

We have a tendency to avoid preparation for events that are irregular. Take the pandemic for instance. We know the regularity of global pandemics occurs every hundred years, yet our preparation for COVID was inadequate. What’s the point in investing in avoidance mechanisms for events that might not happen in the close future is the idea. We don’t consider the possibilities since we operate on a more shallow time frame.

Rodney Viereck, head of the research at the National Weather Service’s Space Weather Prediction Centre, said “In a perfect world, in the next three to five years, we will have built-in more robustness into the (warning) system and we will build in more awareness, so the chance of a major catastrophic failure continues to get lower and lower, But on the other hand, we don’t know how big a storm could be. We’ve only been looking at space weather for the last 40 years, and so we don’t have a longtime history and there are indications that these storms were quite large back in the 1800s. But it’s hard to tell. There’s a lot of uncertainty and unknown”. 

NASA, BAS, And RAL Figuring Out The Risks

Although we are complacent, we are fortunate that space organizations, such as NASA, BAS, and RAL are alive to the pending threat, studying the sun activity. On 12 August 2018, NASA launched the Parker Solar Probe, which surveys the outer sun corona.

It is no doubt that solar flare could lead to severe economic shocks. Fiat currencies would especially experience large volatility, as central banks would not be able to support liquidity. It has been calculated that the US could spend US$2 billion to neutralize the problem, which in relation to the relevant costs, is negligible

Space has the ability to create and dismantle. The risk of solar flares disrupting the financial industry is ever-present, considering our gradual movement away from physical and tangible, into the digital world. The risk is probable, but not guaranteed, and depending on the mitigation techniques in the coming years, it will determine the relative severity of the shock that follows.

Jon is a writer for RegTech Global, specialized background is in Computer Science, Zoology, Finance, and Neuroscience. He is interested in biotechnology and Green-tech and pursues these fields in his professional life. Outside of writing, Jon is passionate about the outdoors, enjoying hiking, surfing, and skiing.



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