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

OBFA-TRANSFORM Working Paper No. 4-EN

27 Pages Posted: 7 Feb 2025 Last revised: 9 Feb 2025

See all articles by Jens van 't Klooster

Jens van 't Klooster

University of Amsterdam

Steffen Murau

Boston University - Global Development Policy Center; Global Climate Forum; Free University of Berlin (FUB)

Date Written: January 31, 2025

Abstract

Internationalisation of the euro has for decades eluded EU policymakers. In this article, we develop a novel explanation of the subordinate position of the single currency. To this end, we build on the state of the art in International Political Economy (IPE) scholarship and develop a new conceptual framework for currency internationalisation. We argue that internationalising a currency requires actively fostering the offshore creation of private credit money denominated in the currency. By approaching internationalisation as an entirely market-driven process, EU policymakers have neglected offshore monetary governance. This has discouraged rather than incentivised the expansion of offshore euro creation and thereby undermined the objective of euro internationalisation. We use our conceptual framework to study the failure to recognize the importance of offshore euro creation in fostering cross-border value chains, the prohibitive provision of international lender of last resort facilities for offshore euros, as well as the undersupply of euro-denominated safe assets. Our new account of currency internationalisation emphasizes the crucial role of the state in successful internationalisation, in particular for fostering the offshore creation of private credit money denominated in its currency.

Keywords: Currency competition, European Commission, European Central Bank, swap lines, safe asset, credit money

Suggested Citation

van 't Klooster, Jens and Murau, Steffen, Rethinking Currency Internationalisation. Offshore Money Creation and the EU's Monetary Governance (January 31, 2025). OBFA-TRANSFORM Working Paper No. 4-EN, Available at SSRN: https://ssrn.com/abstract=5122161 or http://dx.doi.org/10.2139/ssrn.5122161

Jens Van 't Klooster

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, NE 1018 WB
Netherlands

Steffen Murau (Contact Author)

Boston University - Global Development Policy Center ( email )

53 Bay State Road
Boston, MA 02215
United States

Global Climate Forum ( email )

Neue Promenade 6
Berlin, 10178
Germany

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

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