Dr. Steffen Murau| steffenmurau.com

2020 | ‘Private Debt as Shadow Money? Conceptual Criteria, Empirical Evaluation and Implications for Financial Stability’ (with Tobias Pforr), Private Debt Project

Some scholars have labeled the financial structures that faced a run during the 2007-9 Financial Crisis as ‘shadow banking system’ and have connected it to the emergence of new monetary instruments. This was the starting point for thinking about various forms of private debt as ‘shadow money’. Since then several shadow money theories have emerged, with seemingly different conceptualizations of shadow money. We argue that, despite different terminology and intellectual ancestry, these theories generally agree on three key criteria that define shadow money. A financial instrument must be met by a demand that considers it an alternative to established forms of money, has to trade at par to higher-ranking forms of money and must be created through a swap of private debt certificates (IOUs). Based on these criteria, we look at four instruments to discuss how and under what conditions they correspond, or have corresponded, to those criteria. These are money market fund shares, overnight repurchase agreements, asset- backed commercial papers and foreign exchange swaps. We show that the disagreement over what instruments to count as shadow money lies in the level of strictness in applying those criteria on real-world financial instruments. If we are mathematically strict, none of the instruments can be categorized as shadow money. If we allow for more empirical variation, then all of the instruments correspond to the definition.

Presentation at Intersections of Finance and Societies conference, London (12/2019)

Co-author:
Tobias Pforr, University of Reading

Download link:
Private Debt Project

Related articles

‘Encumbered Security. Conceptualizing Vertical and Horizontal Repos in the Euro Area’ (with Alexandru-Stefan Goghie and Matteo Giordano)

Despite the paramount centrality of repurchase agreements (repos) in today’s market-based finance regime, both conceptual and empirical questions about European repo markets are insufficiently explored as contradictory legal and accounting treatments make their on-balance-sheet representation […]

Learn More

2023 | ‘Shadow Money in the History of Monetary Thought’ (with Tobias Pforr), Review of Political Economy

Following the Global Financial Crisis, some scholars have conceptualized the credit instruments that lay at its center as “shadow money”. As this perspective seems to contradict most established monetary theories, we situate the “shadow money” […]

Learn More

2020 | ‘What is Money in a Critical Macro-Finance Framework?’ (with Tobias Pforr), Finance and Society

This article explains how analyzing the creation, distribution, and destruction of contemporary credit money is placed center-stage in the emerging field of critical macro-finance. This approach involves not only traditional forms of money but also […]

Learn More