The Political Economy of Financing Large-Scale Transformations
Off-Balance-Sheet Fiscal Agencies in Wars, Reconstruction, and the Green Transition
The OBFA-TRANSFORM project. An Emmy Noether research group
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?
Objectives
Key concepts
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.
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.
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, 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.
find out more
Reconstruction finance
OBFAs were commonly used to finance the economic reconstruction after wars and major crises. Some OBFAs were phased out, others remain part of the monetary architecture until today.
find out moreGreen Transition finance
OBFAs are among the most promising financing techniques if the Green Transition is to succeed. Not only can they provide balance sheet elasticity themselves, they may also serve to steer today’s largely privatized monetary architectures towards a predetermined political goal.
find out more
Team
OBFA-TRANSFORM Working Paper Series
Publications
Peer-reviewed journal articles
Murau, Steffen, Alexandru-Stefan Goghie, and Matteo Giordano (forthcoming) ‘Encumbered Security? Vertical and Horizontal Repos in the Euro Area and Their Inherent Ambiguity’, Journal of Financial Regulation, online first, https://doi.org/10.1093/jfr/fjaf003.
van ‘t Klooster, Jens, and Steffen Murau (forthcoming) ‘Rethinking Currency Internationalisation. Offshore Money Creation and the EU’s Monetary Governance’, Journal of European Public Policy, online first, https://doi.org/10.1080/13501763.2025.2497357.
Reimer, Friederike, Andrei Guter-Sandu, Armin Haas, and Steffen Murau (2025) ‘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, online first, https://doi.org/10.1080/07036337.2025.2491618.