- 2019 | ‘States, Markets – and Technocrats. Financial Globalization Reconsidered’ (with Benjamin Braun and Arie Krampf)
International political economy (IPE) has explained financial globalization as the result not of structural forces such as technological progress or world trade but as the result of active promotion by states. By refuting the view that states merely gave in to market pressures, IPE made an important step but failed to go all the way – it has not challenged the conventional understanding of liberalization as states removing barriers to capital flows and market forces. We argue that financial globalization after the end of the Bretton Woods regime was the result not of the liberalization of markets but of infrastructural entanglement between private actors and a narrow and identifiable group of technocratic actors – primarily national central bank experts, the IMF, and the BIS. We conceptualize these transnational technocrats as intermediaries between the public and the private spheres whose activities cut right through the state-market dichotomy that has bedeviled IPE. Drawing on archival material and on new historical research, we trace the emergence of infrastructural entanglement in the context of the rise and transformation of the Eurodollar market during the 1970s.
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)
- 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)
Tobias Pforr, University of Reading
- 2019 | ‘Private Credit Money Accommodation. Rethinking Monetary Sovereignty (with Jens van ‘t Klooster)
The conventional way of thinking about the monetary system implies that we live in a world of ´fiat money’. The state – typically represented by the central bank—is conceived as the primary authority that creates and controls money. This notion gives rise to discussions over monetary sovereignty: about its alleged loss (be it due to technocratic rule, monetary globalization or shadow banking) and the need to restore democratic control; or about the dangers of fiat money and the need to overcome it, for example with blockchain technologies. This paper argues that the notion of fiat money that informs these discussions about monetary sovereignty is conceptually and historically misleading. A more accurate look at the history of the modern monetary system shows us that the instruments we perceive as fiat money today emerged as forms of private debt which over time have adopted ‘moneyness’ and systemic relevance. They have been put under public control only in systemic financial crises when public authorities felt forced to intervene—a process I call ‘private credit money accommodation’. This accommodation theory challenges existing ideas about monetary sovereignty in International Political Economy and calls for rethinking our conceptualization of politics and democracy vis-à-vis the monetary system.
To be presented at the International Studies Association’s annual convention, Toronto (03/2019)
- 2019 | ‘Private Debt as Shadow Money? Conceptual Criteria, Empirical Evaluation and Implications for Financial Stability’
Following the 2007-9 Financial Crisis, scholars have come to perceive the financial structures that faced a run at the time as ‘shadow banking system’. According to this narrative, the shadow banking system does on series of different connected balance sheets what a classic commercial bank did on its own singular balance sheet. If we acknowledge that traditional banking involves autonomous money creation by banks and translate this new economic thinking about money to shadow banking as the mere continuation of traditional banking by other means, we arrive at the analytical position that shadow banking has to go along with money creation as well. This is the starting point for thinking about various forms of private debt as ‘shadow bank money’ or ‘shadow money’. Currently, there are several shadow money theories on the market for ideas; their conceptualizations of shadow money are partly competing, partly consistent. This paper suggests pinning down the shadow money concept to three decisive criteria: Shadow money must be created through a swap of private debt certificates (IOUs); it must be met by a demand that considers it an alternative to established forms of money; and is has to trade at par to higher-ranking forms of money. 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. Following up on this empirical evaluation, the paper discusses four potential ways for policy-makers concerned with financial stability questions to deal with shadow money. This reaches from a laissez-faire approach over the establishment of a public-private partnership to fully putting shadow money under public control or de-monetizing it. While each of these approaches has precedents in history, none of it is free from trade-offs regarding financial stability.