Monetary architecture and the Green Transition

Steffen Murau, Armin Haas and Andrei Guter-Sandu
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Steffen Murau: Global Climate Forum, Berlin, Germany
Armin Haas: Global Climate Forum, Berlin, Germany
Andrei Guter-Sandu: Department of Politics, Languages & International Studies, University of Bath, UK

Environment and Planning A, 2024, vol. 56, issue 2, 382-401

Abstract: How to finance the Green Transition toward net-zero carbon emissions remains an open question. The literature either operates within a market-failure paradigm that calls for carbon taxes or cap-and-trade to help markets correct themselves, or via war finance analogies that offer a “triad†of state intervention possibilities: taxation, treasury borrowing, and central bank money creation. These frameworks often lack a thorough conceptualization of endogenous credit money creation and disregard the systemic and procedural dimensions of financing the Green Transition. We propose “Monetary Architecture†as a more comprehensive framework that perceives the monetary and financial system as a constantly evolving and historically specific hierarchical web of interlocking balance sheets. Using the United States as a case study, we stress the importance of a systemic financing dimension that uses all available elasticity space in the monetary architecture while considering a division of labor between firefighting balance sheets such as central banks or treasuries and workhorse balance sheets such as off-balance-sheet fiscal agencies or shadow banks. Procedurally , public workhorses should provide an initial balance sheet expansion and crowd in the rest of the monetary architecture, notably shadow banks, for long-term funding. Firefighters should prevent systemic instability and manage a possible final contraction.

Keywords: Critical macro-finance; Federal Reserve; Treasury; shadow banking; off-balance-sheet fiscal agency; endogenous money; systemic financing; financial cycle; financial instability; financial crisis; carbon bubble; transition risk (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:sae:envira:v:56:y:2024:i:2:p:382-401

DOI: 10.1177/0308518X231197296

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