- 2020 | ‘Towards a Macro-financial Model of the Eurozone Architecture’
It is a convention to say that Eurozone architecture is ill-constructed and deficient. However, there is neither a comprehensive theoretical definition of monetary architecture in general, nor is there a precise definition of the Eurozone architecture in particular. This paper combines insights from the emerging research strand of (critical) macro-finance and develops an institutionalist, inductive model of the Eurozone architecture to remedy those conceptual shortcomings. It proposes to imagine a monetary architecture as a hierarchical web of interlocking balance sheets comprised of three elements —institutions, instruments and elasticity space—that are located in four different segments of central banks, commercial banks, non-bank financial institutions and fiscal authorities, including treasuries and off-balance sheet fiscal agencies. Using a systemic approach on global finance, the paper sees the Eurozone as a monetary jurisdiction embedded in the first-layer periphery of the global Offshore US-Dollar System. It has multiple cross-connections with the US monetary jurisdiction, which is located at the apex of that system, and incorporates offshore US-Dollar creation and shadow banking activities.
- ‘Quantitative Easing, Central Bank Independence and the Seeming Fundamental Difference between Monetary and Fiscal Policy’ (with Tobias Pforr)
Quantitative Easing (QE) has become the main new central banking activity after the 2007-9 Financial Crisis. Conventionally referred to as an ‘unconventional monetary policy’, the Federal Reserve has recently called it the ‘new normal’ of central banking. At the same time, QE sparks fear and anxieties in others, especially as it is said to endanger central bank independence and blur the boundaries of monetary of fiscal policy with inflationary effects. This paper investigates this criticism. By adopting insights from International Political Economy, the Money View and Social Studies of Finance, we advance two separate, yet connected arguments. First, we argue that both expansionary monetary policy and debt-financed expansionary fiscal policy originate in one generalized balance sheet operation, a swap of IOUs between the central bank and the treasury, and are hence two sides of the same coin. From that perspective, QE represents a prototypical form of credit money creation and is not at all as unconventional as the current discourse suggests. Second, we highlight that the concept of central bank independence imagines the process of money creation to be fully apolitical. However, we argue that the institutional setup for money creation is always and everywhere political because it relies on social infrastructures that organize creditor-debtor relations. Historically, however, there have always been strategies to depoliticize money creation, the latest one being the dogma of central bank independence. By reconnecting monetary and fiscal policy, QE in itself does not politicize money creation but puts a crack in the existing de-politicization strategy.
Presentations at EAEPE conference, Nice (09/2018), Oxford Political Economy of Finance Conference (10/2018), City Political Economy Research Center seminar (11/2018), Intersections of Finance and Societies conference, Edinburgh (12/2018), Annual Convention of the International Studies Association, Honolulu (03/2020)
Tobias Pforr, University of Reading
- ‘Rethinking Monetary Sovereignty. The Global Credit Money System and the State’ (with Jens van ‘t Klooster)
This article proposes a conception of monetary sovereignty that recognizes the reality of today’s global credit money system. Monetary sovereignty is typically used in a ‘Westphalian’ sense that simply denotes the ability of states to issue and regulate their own currency. This article rejects the Westphalian conception. Instead, it proposes a conception of effective monetary sovereignty that focuses on what states are actually able to do in the era of financial globalization. It fits the hybridity of the modern credit money system by acknowledging the crucial role not only of central bank money but also of money issued by regulated banks and unregulated shadow banks. These institutions often operate ‘offshore’, outside a state’s legal jurisdiction. Monetary sovereignty consists in the ability of states to effectively govern these different segments of the monetary system and thereby achieve their economic policy objectives.
Presentation at the International Studies Association’s annual convention, Toronto (03/2019)
Jens van ‘t Klooster, European University Institute