This paper examines the UK’s Exchange Equalisation Account (EEA) as a foundational but overlooked case of sovereign financial engineering through an off-balance-sheet fiscal agency (OBFA). Established in 1932 following Britain’s abandonment of the gold standard, the EEA is a Treasury-controlled fund operated via the Bank of England, initially tasked with stabilising the external value of sterling through secret foreign exchange and gold market interventions. With the onset of the Second World War, its mandate expanded dramatically: the EEA absorbed the nation’s gold reserves, commandeered foreign securities, and underpinned Britain’s issuance of sterling-denominated liabilities to finance wartime imports and expenditures, all the while keeping these activities outside the official government balance sheet. Drawing on extensive archival sources and original time-series data, the paper situates the EEA within the Critical Macro-Finance (CMF) framework, which conceptualises the international monetary and financial system as a hierarchical web of interlocking balance sheets—shaped by political and institutional power—through which liquidity and credit are distributed and contested. From this perspective, the EEA operated as a critical sovereign liquidity facility, enabling Britain to fund large-scale war mobilisation without overtly breaching norms of fiscal orthodoxy or destabilising sterling’s international position. In doing so, it exemplifies how states deploy hidden financial infrastructures to manage monetary-fiscal boundaries and navigate systemic shocks. The analysis contributes to three debates central to contemporary political economy: the historical lineage of off-balance-sheet state interventions; the opacity and flexibility of wartime monetary architectures; and the evolution of sovereign balance sheet management under conditions of external constraint. By recovering the EEA’s wartime role, the paper sheds new light on the critical infrastructures underpinning sovereign financial resilience, a theme that resonates with today’s renewed reliance on unconventional fiscal mechanisms in the face of environmental and geopolitical crises.
Co-authors:
Andrei Guter-Sandu, University of Bath
Verena Gradinger, Global Climate Forum
Olan McEvoy, Global Climate Forum
