The Political Economy of Financing Large-Scale Transformations. Off-Balance-Sheet Fiscal Agencies in Wars, Reconstruction, and the Green Transition

The Green Transition—a politically desired large-scale transformation of physical capital stock to reach net-zero carbon emissions—is the greatest challenge of our age. We broadly know what technically needs to happen, but one question remains unsettled: Where should the money come from to pay for it? The guiding hypothesis of this interdisciplinary project is that off-balance-sheet fiscal agencies (OBFAs)—hybrid public-private institutions which uniquely combine dimensions of monetary and fiscal policy—played a crucial role in past large-scale transformations and are best suited to do so again in the Green Transition.

OBFAs come in various guises—supranational development banks, national development banks, public deposit insurance schemes, government-sponsored enterprises etc.—and are a recurrent feature of financing politically desired large-scale transformations. This may explain why they were mobilized at historical junctures such as wars and reconstruction. Yet OBFAs’ role in financing past transformations is under-researched and not well understood. This project seeks to remedy that. On the one hand, OBFAs can use their own balance sheet to provide expansion, funding, and contraction by mobilizing elasticity space that treasuries do not have, while being backstopped by central banks. On the other hand, OBFAs can engage with other segments such as banks or non-bank financial institutions and align them with the macro-financial goal of financing large-scale transformations. This may entail contributing to triggering an initial expansion of the monetary architecture, ‘crowding in’ private balance sheets and organizing the allocation of credit instruments during the funding phase, and managing the contraction of balance sheets when the financing cycle comes to its end.

The project thus puts OBFAs centerstage and investigates how they were used historically to finance large-scale transformations, while at the same time making use of an up-to-date theory of modern credit money. The project is driven by three motivations: (1) historical case studies on war finance and reconstruction finance mostly fail to account for the role of OBFAs; (2) OBFAs seem to unlock new governance capacities useful in periods of large-scale transformation; and (3) insights into OBFAs can fruitfully inform our effort to decarbonize the global economy.


Analyze the financing of past large-scale transformation: We will use our conceptual framework to study how politically desired large-scale transformations of the 20th century were financed. We will map the transformation of historical monetary architectures during the financing process, concentrating on the key role played by off-balance-sheet fiscal agencies (OBFAs).

Theorize OBFAs’ role and implications for democratic governance: Drawing on the historical case studies, we theorize on the broader pattern of using OBFAs in financing politically desired large-scale transformations and the specific functions they fulfill. We will also investigate if and how this technique is compatible with our ideas of legitimate democratic governance.

Use historical insights to build actionable policy prescriptions: Putting these findings together, we will shift our focus to the Green Transition. We will build a policy proposal for using OBFAs to facilitate systemic financing of the Green Transition and steer today’s monetary architecture. We will communicate this proposal to stakeholders through articles, a book, and an interactive tool.

Case studies

War finance: OBFAs played a pivotal role in financing military expenditure in North America and Europe throughout the 20th century. Setting up OBFAs not only enhanced credit money creation at an unprecedented scale but also transformed the monetary architectures for good.

Reconstruction finance: OBFAs were commonly used to finance the economic reconstruction after wars and major crises. Some OBFAs were phased out, others remain part of the monetary architecture until today.

Green Transition finance: OBFAs are among the most promising financing techniques if the Green Transition is to succeed. Not only can they provide balance sheet elasticity themselves, they may also serve to steer today’s largely privatized monetary architectures towards a predetermined political goal.


Dr. Steffen Murau, Principal Investigator

Dr. Armin Haas, Senior Researcher

Dr. Andrei Guter-Sandu, Senior Associate Researcher

Beatrix Opolka, Science Manager


OBFA-TRANSFORM is an Emmy Noether research group funded by Deutsche Forschungsgemeinschaft (German Research Foundation, DFG), project number 499921148.

A collaborating institution for the OBFA-TRANSFORM project is the John F. Kennedy Institute (JFKI) for North America Studies at Freie Universität Berlin. PhD students affiliated with the project are able to become part of JFKI’s graduate school.

The OBFA-TRANSFORM project started in April 2023. Its expected duration is six years.

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