OBFA-TRANSFORM - The Political Economy of Financing Large-Scale Transformations

The Political Economy of Financing Large-Scale Transformations

Off-Balance-Sheet Fiscal Agencies in Wars, Reconstruction, and the Green Transition

What is OBFA transform?

The Green Transition — a politically desired large-scale transformation of physical capital stock to reach net-zero carbon emissions — is the greatest challenge of our age. We broadly know what technically needs to happen, but one question remains unsettled: Where should the money come from to pay for it? online tool

Objectives

We will use our conceptual framework to study how politically desired large-scale transformations of the 20th century were financed. We will map the transformation of historical monetary architectures during the financing process, concentrating on the key role played by off-balance-sheet fiscal agencies (OBFAs).

Analyze the financing of past large-scale transformations

Key concepts

Monetary architecture

A methodology to represent historically specific monetary and financial systems as a web of balance sheets that comprises different monetary and fiscal institutions and interlocks via different credit instruments.

Off-balance-sheet fiscal agencies

Public-private entities whose activities combine traces of monetary and fiscal policy, and can play a critical role to steer monetary architectures in a large-scale transformation.

Three-Phase Financing Process

The systemic financing of a large-scale transformation requires an initial balance sheet expansion long-term funding, and eventually a final contraction of the balance sheets in a monetary architecture.

The triad of taxation

The ‘triad’ of taxation, government borrowing, and central bank money creation are conventionally seen as the avalaible policy options for a state to finance large-scale transformations.

Monetary architecture

A methodology to represent historically specific monetary and financial systems as a web of balance sheets that comprises different monetary and fiscal institutions and interlocks via different credit instruments.

Off-balance-sheet fiscal agencies

Public-private entities whose activities combine traces of monetary and fiscal policy, and can play a critical role to steer monetary architectures in a large-scale transformation.

Three-Phase Financing Process

The systemic financing of a large-scale transformation requires an initial balance sheet expansion long-term funding, and eventually a final contraction of the balance sheets in a monetary architecture.

The triad of taxation

The ‘triad’ of taxation, government borrowing, and central bank money creation are conventionally seen as the avalaible policy options for a state to finance large-scale transformations.

Case studies

War
finance

OBFAs played a pivotal role in financing military expenditure in North America and Europe throughout the 20th century. Setting up OBFAs not only enhanced credit money creation at an unprecedented scale but also transformed the monetary architectures for good.

Reconstruction
finance

Post-war reconstruction efforts required massive financial coordination between public and private sectors. OBFAs emerged as crucial intermediaries in channeling resources for rebuilding infrastructure and economic systems.

Green Transition
finance

Modern climate finance leverages OBFA structures to mobilize capital for renewable energy and sustainable infrastructure projects, creating new monetary architectures for environmental transformation.

War
finance

OBFAs played a pivotal role in financing military expenditure in North America and Europe throughout the 20th century. Setting up OBFAs not only enhanced credit money creation at an unprecedented scale but also transformed the monetary architectures for good.

Reconstruction
finance

Post-war reconstruction efforts required massive financial coordination between public and private sectors. OBFAs emerged as crucial intermediaries in channeling resources for rebuilding infrastructure and economic systems.

Green Transition
finance

Modern climate finance leverages OBFA structures to mobilize capital for renewable energy and sustainable infrastructure projects, creating new monetary architectures for environmental transformation.

Team

Olan McEvoy

Doctoral researcher

Dr. Steffen Murau

Principal Investigator

Dr. Armin Haas

Senior researcher

Dr. Andrei Guter-Sandu

Senior associate researcher

Friederike Reimer

Doctoral researcher

Publications

Encumbered Security? Vertical and Horizontal Repos in the Euro Area and Their Inherent Ambiguity	Journal of Financial Regulation, forthcoming, online first	Murau, Steffen, Alexandru-Stefan Goghie, and Matteo Giordano (forthcoming)
Rethinking Currency Internationalisation. Offshore Money Creation and the EU's Monetary Governance	Journal of European Public Policy, forthcoming, online first	van 't Klooster, Jens, and Steffen Murau
Schrödinger's Off-Balance-Sheet Fiscal Agency. The Recovery and Resilience Facility and the Limits to Incremental Fiscal Integration in Europe	Journal of European Integration, 2025, online first	Reimer, Friederike, Andrei Guter-Sandu, Armin Haas, and Steffen Murau
Green Macro-Financial Governance in the European Monetary Architecture	Competition and Change, 2024, online first	Guter-Sandu, Andrei, Armin Haas, and Steffen Murau
Monetary Architecture and the Green Transition	Environment and Planning A: Economy and Space 56 (2), pp. 382-401, 2024	Murau, Steffen, Armin Haas, and Andrei Guter-Sandu

Encumbered Security? Vertical and Horizontal Repos in the Euro Area and Their Inherent Ambiguity

Journal of Financial Regulation, forthcoming, online first

Murau, Steffen, Alexandru-Stefan Goghie, and Matteo Giordano (forthcoming)

Rethinking Currency Internationalisation. Offshore Money Creation and the EU's Monetary Governance

Journal of European Public Policy, forthcoming, online first

van 't Klooster, Jens, and Steffen Murau

Schrödinger's Off-Balance-Sheet Fiscal Agency. The Recovery and Resilience Facility and the Limits to Incremental Fiscal Integration in Europe

Journal of European Integration, 2025, online first

Reimer, Friederike, Andrei Guter-Sandu, Armin Haas, and Steffen Murau

Working Paper Series

OBFA-TRANSFORM
Working Paper Series

The OBFA-TRANSFORM Working Paper Series publishes ongoing research output by the group that applies the Monetary Architecture framework and the OBFA concept on various contemporary and historical subjects.

No. 11-EN

A Silent Revolution in the Suburbs. Off-Balance-Sheet Fiscal Agencies in U.S. Mortgage Finance, 1932-1981

Olan McEvoy, Fanny Chaltiel, Andrei Guter-Sandu, and Steffen Murau

May 2025

No. 10-EN

Mind the Macmillan Gap: Off-Balance-Sheet Fiscal Agencies in Britain's Post-War Industrial Financing, 1945-1973

Olan McEvoy, Moritz Kapff, Andrei Guter-Sandu, and Steffen Murau

May 2025

No. 9-EN

From Stabilisation to Strategic Mobilisation. The Exchange Equalisation Account as a Wartime Off-Balance-Sheet Fiscal Agency, 1932-1945

Andrei Guter-Sandu, Olan McEvoy, Verena Gradinger, and Steffen Murau

May 2025

No. 8-EN

Après le Déluge. Managing Balance Sheet Contraction after the First World War

Armin Haas, Verena Gradinger, Andrei Guter-Sandu, and Steffen Murau

May 2025

No. 7-EN

All Quiet on the Fiscal Front? Off-Balance-Sheet Fiscal Agencies in the German War Economy, 1914-1918

Armin Haas, Andrei Guter-Sandu, Olan McEvoy, and Steffen Murau

May 2025

No. 6-EN

A Feature, not a Bug. The US Dollar in the European Monetary Union

Steffen Murau and Torsten Ehlers

May 2025

View all

“Forming Monetary Unity Through Innovation” and many other materials watch on our channel

DATASET

online

repository

The repository comprises datasets related to papers of the OBFA-TRANSFORM Working Paper series. This comprises polished data for plots and tables used in the papers as well as raw data related to the general context. The data has been compiled based on a wide range of different sources.

TRANSFORMATION
OF THE EUROZONE ARCHITECTURE

Crises and Institutional Change in
the Offshore US-Dollar System

Visualize how monetary institutions evolve during times of crisis and transformation. Based on academic research on financial system change.

Explore the Monetary Architecture Online Tool

PHASE 1Of the Global Financial Crisis lasted from August 2007 to February 2008. It was primarily triggered by the bankruptcy of the mortgage-lender Countrywide Securities. The resulting panic initiated a chain reaction that would eventually lead to a global economic downturn.

PHASE 2Of the Global Financial Crisis lasted from March to September 2008.. It was primarily triggered by the collapse of Bear Stearns in March, which exposed deep vulnerabilities in the financial system. During this phase, there was a severe deterioration in the liquidity and value of key financial instruments such as asset-backed mortgage securities (A-MBSs), asset-backed commercial papers (ABCPs), and mortgage loans. These instruments, which had been central to financial markets' growth, became increasingly illiquid, amplifying the credit crisis.

PHASE 3Of the Global Financial Crisis lasted from September 2008 to January 2009. It was closely tied to the bankruptcy of Lehman Brothers, which triggered a systemic shock across global financial markets. This phase saw a severe contraction in the value and liquidity of key financial instruments, including asset-backed mortgage securities (A-MBSs), asset-backed commercial papers (ABCPs), and mortgage loans. The collapse of Lehman Brothers intensified counterparty risk, exacerbating the credit squeeze and leading to a widespread loss of confidence in the financial system.