Andrei Guter-Sandu, Armin Haas and Steffen Murau

The European Green Transition requires massive financing efforts, with estimates of EUR 620bn EUR annually, and the headwinds are substantial. Central banks seem overstretched and busy tightening to combat inflation; treasuries are subject to austerity-inducing fiscal rules; and banking systems are afflicted by non-performing loans, fragmentation, and risk aversion. We employ the Monetary Architecture framework to analyze the EU’s monetary and financial system as a constantly evolving hierarchical web of interlocking balance sheets and study its capacity to find “elasticity space” to meet the financing challenge. To this end, we draw on a four-step scheme for Green macro-financial governance along the financial cycle of balance sheet expansion, funding, and final contraction. We find that, first, Europe’s monetary architecture still has ample elasticity space to provide a green initial expansion due to its developed ecosystem of national, subnational, and supranational off-balance-sheet fiscal agencies. Second, as mechanisms to consciously organize the distribution of long-term debt instruments across different segments are absent, its capacity to provide long-term funding is limited. Third, institutional transformation in the last two decades has greatly improved the capacity of the European monetary architecture to counteract financial instability by providing emergency elasticity. Fourth, the capacity of the European monetary architecture to manage a final contraction of balance sheets is limited, which is a general quandary in modern credit money systems. Our analysis points to the need for further investigations into techniques for monetary architectures to manage long-term funding and balance sheet contractions.

Guter-Sandu, Andrei, Armin Haas, and Steffen Murau (2024) ‘Green Macro-Financial Governance in the European Monetary Architecture. Assessing the Capacity to Finance the Net-Zero Transition’, Competition and Change, online first, doi: 10.1177/10245294241275103.

OBFA-TRANSFORM

Steffen Murau and Tobias Pforr

Following the 2007–9 Global Financial Crisis, scholars have conceptualized the credit instruments that lay at its center as ‘shadow money’. As this perspective seems to contradict many established monetary theories, we situate the shadow money concept in the history of monetary thought and clarify the assumptions under which it is meaningful. First, the shadow money concept stems from a market-based credit theory of money which rejects notions that money is primarily chosen by the state and that credit is logically subordinate to money. We explain the associated implications by mobilizing the ‘Matrix of Monetary Thought’ as an analytical tool. Second, the shadow money concept transcends the orthodox three-functions-theory of money because it prioritizes the unit-of-account function as the basis to operate payment systems. This is a theoretical position that stands in the tradition of Henry Thornton. Third, the shadow money concept assumes an inherent hierarchy within monetary systems with a spectrum of monetary forms at the edge of which definitions of moneyness get blurry. The defining feature for credit money is the existence of a par relationship with the ex ante defined unit of account. We conclude that conceptually ambiguous shadow money forms have existed across multiple historical eras.

Murau, Steffen, and Tobias Pforr (2023) ‘Shadow Money in the History of Monetary Thought’, Review of Political Economy, online first, doi: 10.1080/09538259.2023.2272140.

OBFA-TRANSFORM

Steffen Murau, Armin Haas and Andrei Guter-Sandu

How to finance the Green Transition toward net-zero carbon emissions remains an open question. The literature either operates within a market-failure paradigm that calls for carbon taxes or cap-and-trade to help markets correct themselves, or via war finance analogies that offer a “triad” of state intervention possibilities: taxation, treasury borrowing, and central bank money creation. These frameworks often lack a thorough conceptualization of endogenous credit money creation and disregard the systemic and procedural dimensions of financing the Green Transition. We propose “Monetary Architecture” as a more comprehensive framework that perceives the monetary and financial system as a constantly evolving and historically specific hierarchical web of interlocking balance sheets. Using the United States as a case study, we stress the importance of a systemic financing dimension that uses all available elasticity space in the monetary architecture while considering a division of labor between firefighting balance sheets such as central banks or treasuries and workhorse balance sheets such as off-balance-sheet fiscal agencies or shadow banks. Procedurally, public workhorses should provide an initial balance sheet expansion and crowd in the rest of the monetary architecture, notably shadow banks, for long-term funding. Firefighters should prevent systemic instability and manage a possible final contraction.

Murau, Steffen, Armin Haas, and Andrei Guter-Sandu (2024) ‘Monetary Architecture and the Green Transition’, Environment and Planning A: Economy and Space 56 (2), pp. 382-401, doi: 10.1177/0308518X231197296.

OBFA-TRANSFORM

Steffen Murau, Fabian Pape and Tobias Pforr

The notion that the international monetary system is hierarchical has become increasingly common, but the nature, causes, and shape of international monetary hierarchy remain vague. In this article, we develop a monetary theory of international hierarchy based on the “key currency” approach. We perceive the international monetary system as a world-spanning payment system that is inherently hierarchical because it needs central nodes for clearing and settlement. The centrality of the US-Dollar (USD) as global key currency places the US at the apex and makes the Federal Reserve (Fed) the system’s hierarchically highest institution. Other monetary jurisdictions are pushed into peripheral positions and rely on both using and creating USD-denominated credit money instruments “offshore.” Based on this approach, we explain international monetary hierarchy through different mechanisms to supply emergency USD liquidity from the Fed to non-US central banks. Currently, there are three different public mechanisms for non-US central banks to access the Fed’s balance sheet and attain emergency USD liquidity. The first-layer periphery may receive emergency USD liquidity via the Fed’s central bank swap lines. The second-layer periphery can make use of the Fed’s new repo facility for Foreign and International Monetary Authorities to access emergency USD liquidity. The residual mechanism for the third-layer periphery to access emergency USD liquidity is the Special Drawing Rights system, administered by the International Monetary Fund, in which the Exchange Stabilization Fund acts as gatekeeper for the Fed.

Murau, Steffen, Fabian Pape, and Tobias Pforr (2023) ‘International Monetary Hierarchy through Emergency US-Dollar Liquidity. A Key Currency Approach’, Competition and Change 27(3-4), pp. 495–515, doi: 10.1177/10245294221118661.

OBFA-TRANSFORM