The Trump administration's plans to use the Development Finance Corporation to insure oil tankers in the Gulf to the tune of 350bn dollars has again drawn attention to how states try to respond to emergencies when they are subject to fiscal constraints. A 🧵
www.ft.com/content/6dde...
Pleased to announce publication of the fifth edition of states versus markets
www.bloomsbury.com/us/states-ve...
The book is now old enough to drink in the USA but of course I have significantly updated it with each new edition. Buy a copy for Mother's Day or the holiday of your choice!
At the OBFA-TRANSFORM group, we sometimes do videos on our publications - now it was my turn, with @olanmcevoy.bsky.social interviewing me on our paper on the Recovery and Resilience Facility and the limits to incremental fiscal integration in Europe!
www.youtube.com/watch?v=qT7P...
➡️ The failure to coordinate investment across public, private and hybrid balance sheets.
➡️ The failure to discipline or direct private capital toward domestic reinvestment.
We argue that the post-Apartheid state has not established a framework for governing the monetary architecture as a complex adaptive system. This has produced three systemic failures:
➡️ The failure to integrate poor households into the financial architecture.
We show how the assets & liabilities of banks, development finance institutions (DFIs), pension funds, shadow banks, households & state-owned enterprises (SOEs) interact to support/constrain investment & inclusive growth
We also introduce different "classes" of households & firms to the framework
We analyze how SA's monetary architecture changed in the last few decades. To this end, we visualize the setup of the South Africa's web of interlocking balance sheets in 1983, 1996, 2014, and 2024
The report is based on contributions and discussions with experts on South Africa’s economy and financial system. We also had several high-level workshops between 2023 and 2025
📝 Our report on the transformation of South Africa’s monetary architecture (1983-2024) co-authored with Mark Swilling for the National Planning Commission of South Africa has been launched last week! 📝
Find the full report here: www.nationalplanningcommission.org.za/assets/Docum...
@agutersandu.bsky.social, Armin Haas, @leon-heckmann.de, @moritzkapff.bsky.social, @gregorlaudage.bsky.social, @olanmcevoy.bsky.social and @paulstichler.bsky.social
@proufos.bsky.social, @csissoko.bsky.social, Aleksandar Stojanović, @matthiasthiemann.bsky.social, @jvtk.bsky.social, and @jwullweber.bsky.social. We owe a great deal to all of them. Moreover, thanks to all the other members of the OBFA-TRANSFORM project Fanny Chaltiel, @averenasour.bsky.social,
Numerous people have commented on various aspects of this project over the years, including @andreabinder.bsky.social, @benbraun.bsky.social, @plbds.bsky.social, @danielagabor.bsky.social, Martin Höner, Elizaveta Kuznetsova, Perry Mehrling, @fabianpape.bsky.social, Tobias Pforr, Jay Pocklington,
The idea to develop an interactive visualization of the dynamics in a monetary architecture emerged in 2020.
In the OBFA-TRANSFORM project (obfa-transform.eu), we developed the backend & frontend structure. It runs on large spreadsheets that capture the complexity of the case studies.
Our take on it has been published in an article in the Journal of Financial Regulation entitled ‘Encumbered Security? Vertical and Horizontal Repos in the Euro Area and Their Inherent Ambiguity’: academic.oup.com/jfr/article/...
2️⃣ The second intricacy was related to the depiction of repurchase agreements (repos) in Europe and how we could make sense of the role that they played during the Eurocrisis. In consequence, we have developed a novel balance sheet methodology to conceptualize repos.
We present our monetary and balance-sheet interpretation in the article ‘Forging Monetary Unification through Novation. The TARGET System and the Politics of Central Banking in Europe’, published in the journal Socio-Economic Review: academic.oup.com/ser/article/...
1️⃣ The first intricacy concerned the TARGET2 system, which connects the European Central Bank with the National Central Banks, and the infamous TARGET2 imbalances that exist between them
But we faced two methodological challenges regarding the conceptualization of some elements of the Eurozone architecture, which forced us to make a multi-annual detour:
The study and the online tool are the outcome of a longer journey that started during a postdoc at @gdp-center.bsky.social funded by @dfg.de
We had developed the framework for the study as early as 2021 and largely written the case study on the Global Financial Crisis in summer 2022
We recently published a study on the transformation of the Eurozone architecture (🔗 papers.ssrn.com/sol3/papers...., with Alex Goghie, Matteo Giordano & @rikereimer.bsky.social) and launched an accompanying interactive online tool (🔗 monetary-architecture.com).
This is how it came to be 👇
You can click through two case studies: the Global Financial Crisis and the Eurocrisis, and follow step by step the balance sheet dynamics of contraction, elasticity, and innovation that emerge
The tool complements our recent publication: papers.ssrn.com/sol3/papers....
🔄 Explains how credit instruments form a self-referential system by tracing on which balance sheets they are held as assets or liabilities
✒️ Complements academic publications and helps communicate the Monetary Architecture framework for teaching, outreach activities, and policy purposes
What does the online tool do?
▶️ Makes the Monetary Architecture framework interactive
🕸️ Visualizes dynamic change in a web of interlocking balance sheets with a time-shift function
🏛️ Conveys how monetary architectures are historically specific and subject to permanent transformation
🚀 To accompany our recent study on the transformation of the Eurozone architecture, we are also launching an interactive online tool. Check out monetary-architecture.com
2️⃣ Creation of new off-balance-sheet fiscal agencies (OBFAs) as bad banks or suppliers of emergency elasticity
3️⃣ Re-affirmation of a reciprocal guarantee structure between central banks and treasuries as the main balance sheets at the apex of the monetary hierarchy
More on this research to follow
The Eurozone architecture transformed mainly via three innovation types that stopped the contractions & altered the web of interlocking balance sheets:
1️⃣ Setting up new contingent instruments to pull credit instruments onto (public) balance sheets higher up in the monetary hierarchy
➡️ In the Eurocrisis, the funding of sovereign debt collapsed, which played out through a series of “doom loops” amplified by the Eurozone's reliance on repo markets for funding sovereign debt.
➡️ In the Global Financial Crisis, funding in the shadow banking system collapsed after the initial default of mortgages, with contagion across sectors and borders, escalating to a run on repo markets and offshore dollars in Europe.
Our two case studies of the 2007-9 Global Financial Crisis and the 2009-12 Eurocrisis show:
➡️ Both crises were essentially about the inability to maintain the funding of the volume and type of credit instruments in the US and Eurozone monetary architectures.
✳️ Inbuilt elasticity is activated by hierarchically higher balance sheets, which deliver on guarantees and insurance to mitigate the contraction.
🌀 Innovation happens as a response to insufficient elasticity mechanisms through the creation of new instruments and institutions.
