Abstract
This paper provides an alternative view of monetary sovereignty (MS) from the Neo-Chartalist approach found in the Modern Money Theory literature. The differences between the author's approach to MS and Neo-Chartalism cover the following aspects: the nature of money, the acceptability of money, and the relationship between the central bank and the Treasury. The paper then analyses the relationship between MS, the currency hierarchy (CH), and policy space. The focus is placed on emerging-market economies. It is argued that emerging-market economies' policy space is determined by the interplay of two factors: the degree of MS and the position of national money (that encompasses the state and bank monies) within the CH.
Highlights
This paper provides an alternative view of monetary sovereignty (MS) to the NeoChartalist approach found in the Modern Money Theory (MMT) literature
The paper analyses the relationship between MS, the currency hierarchy (CH), and policy space
On the basis of this assessment we present an alternative approach to MS.11
Summary
This paper provides an alternative view of monetary sovereignty (MS) to the NeoChartalist approach found in the Modern Money Theory (MMT) literature. 129) recalls the well-known trilemma, according to which ‘government can choose only two out of the following three: independent domestic policy, fixed exchange rate, and free capital flows.’ He supports that a floating exchange rate ensures greater policy space for a developing country issuer of a sovereign currency. According to Wray (2015), MMT supports floating rates to promote domestic policy space and not to close imbalances, that is, to adjust the balance of payments, as in the mainstream formulation of the trilemma.8 He states that it is misleading to call a current account deficit an ‘imbalance’; by definition it is balanced by the capital account flows.
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