- ‘Towards a Macro-financial Model of the Eurozone Architecture’
While it has become a widespread understanding that the architecture of the Eurozone is ill-constructed and deficient, it is not always clear what exactly is meant by this term. To develop an answer to the simple descriptive question of “What is the Eurozone architecture”, the paper presents a macro-financial model of the Eurozone architecture. Macro-finance seeks to represent the international financial system as a series of interlocking balance sheets that take into account key features of the monetary system known from the Money View framework such as endogenous money creation, hierarchy and hybridity. The goal of the paper is to apply those ideas on the Eurozone context and present the Eurozone architecture as set of interlocking balance sheets.
- ‘The Evolution of the Offshore US-Dollar System: Past, Present and Four Possible Futures’ (with Joe Rini and Armin Haas)
Little has contributed more to the emergence of today’s world of financial globalization than the design of the international monetary system. In its current setup, it has a hierarchical structure with the US-Dollar at the top and various other monetary jurisdictions forming a multilayered periphery to it. A key feature of the system is the creation of US-Dollars offshore—a feature that in the 1950s and 60s has developed in co-evolution with the Bretton Woods System and in the 1970s replaced it. Since the 2007-9 Financial Crisis, this ‘offshore US-Dollar system’ has been backstopped by the Federal Reserve’s network of swap lines to non-US central banks. This systemic evolution may continue in the decades to come, but other systemic arrangements are possible as well and have historical precedents. This article discusses four evolutionary trajectories that would lead to different setups of the international monetary system by 2040, taking into account how it’s hierarchical structure and the role of offshore credit money creation may evolve. Next to a continuation of US Dollar hegemony, we present the emergence of competing monetary blocs, the formation of an international monetary federation, or the drifting into an international monetary anarchy.
Presentations at 15. Jahrestagung der Keynes-Gesellschaft, Berlin (02/2019) and World Interdisciplinary Network for Institutionalist Research (WINIR), Lund (09/2019)
- ‘States, Markets – and Technocrats. Revisiting the Origins of Financial Globalization’ (with Benjamin Braun and Arie Krampf)
International political economy (IPE) has explained financial globalization as the result not merely of market pressure but of states deciding to open up and liberalize their financial systems. Challenging this ‘negative integration’ view as incomplete, this paper advances a ‘positive integration’ view of financial globalization during the 1970s that highlights the agency of monetary technocrats. As public servants acting in private markets, these technocrats act as intermediaries between the public and private, and between the national and international levels. In particular, they manage the infrastructural entanglements between public and private actors that are a core feature of capitalist credit money systems. Drawing on archival records from the ‘Standing Committee on the Euro-currency Market’ at the Bank for International Settlements, we show how this group of G-10 central bankers sought to elevate the management of infrastructural entanglements from the domestic to the international level. By ensuring that the Eurodollar market did not interfere with domestic monetary governability, while seeking to provide protection for issuers of foreign-currency liabilities, monetary technocrats established a level of positive integration that was a necessary condition for the expansion and globalization of the offshore US dollar system.
Presentations at the Politics of Money conference, Brighton (05/2018), the SASE conference, Kyoto (06/2018), the International Studies Association’s annual convention, Toronto (03/2019), the ECPR Joint Workshop Sessions, Mons (04/2019)
- ‘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
- ‘Private Debt as Shadow Money? Conceptual Criteria and Empirical Evaluation’ (with Tobias Pforr)
Following the 2007-9 Financial Crisis, some scholars have come to perceive the financial structures that faced a run at the time as ‘shadow banking system’ and connect it to the emergence of new monetary instruments. This is the starting point for thinking about various forms of private debt as ‘shadow money’. Currently, there are several shadow money theories on the market for ideas, with seemingly very different conceptualizations of shadow money. This paper looks at the three most pertinent shadow money theories and argues that, despite different terminology and intellectual ancestry, they are all build around three decisive criteria: Shadow money 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, the paper looks at four instruments to discuss if and under which conditions they correspond, or have corresponded, to the category of shadow money. These are money market fund shares, overnight repurchase agreements, asset-backed commercial papers and foreign exchange swaps. We argue that the disagreement on the actual instruments that count as shadow money then depends on how strictly the criteria are applied to real-world financial instruments. If we expect a full congruence with the ideal type of shadow money, then none of the instruments can be categorized as such. If we allow for more variation, then all of the instruments may correspond to it.
Presentation at Intersections of Finance and Societies conference, London (12/2019)
Tobias Pforr, University of Reading