Modern Money Theory Research Articles

The Ramifications of the Treasury Single Account, the Ifmis Platform, and Government Cash Management in Developing Economies in the Wake of the Covid-19 Pandemic: Ghana’s Empirical Example

In recent years, the combined effects of inflation, recession, high-interest rates, new investment media and technological advances in information processing have made “Cash Management” an increasingly important and complex subject (IMF, 2001; Ter-Minassian and Parente, 1995). At times, the desire and effort to squeeze out the most from every dollar and to minimise idle cash balances has become an obsession with many organisations and countries. Therefore, effective and efficient Cash Management has become a “sine qua non” for the success of any business organisation (Horcher, 2006a; White, 2006). And Countries, “as Corporate Entities”, are no exceptions to this basic fundamental business principle (Wood & Sangster, 2012). The Theoretical Framework of this study was underpinned by the Stakeholder Theory (Freeman, 1984), the Financial Management Theory (Hayes and Nolan, 1974; Kingston, 1973), and the Modern Money Theory (Friedman, 1964; Keynes, 1930; Mitchell-Innes, 1914). We conducted a cross-sectional research through non-probability and purposive sampling with 200 respondents. Our face-to-face interviews, structured closed-ended and open-ended Questionnaires which were administered online through email application via Google Forms (as a result of the novel, dreaded, and disruptive Covid-19 pandemic), coupled with PETS (Khan and Pessoa, 2010; Reinikka and Svennson, 2006) resulted in startling revelations. Our major finding was that a government lacking an efficient and effective control over its cash resources will definitely pay for its institutional deficiencies in multiple ways (Ahmed, 2016).

Modern Money Theory (MMT) in the Tropics: Functional Finance in Developing Countries

Modern Money Theory (MMT) has become very popular among some progressive economists. Its basic argument is that budget deficits are usually not a constraint on government spending, The authors, progressives themselves, argue that some aspects of MMT are useful, but others are incomplete or confusing. They focus on the application of MMT to developing countries.

What's wrong with Modern Money Theory: macro and political economic restraints on deficit-financed fiscal policy

The essential claim of Modern Money Theory (MMT) is sovereign currency issuing governments, with flexible exchange rates and without foreign currency debt, are financially unconstrained. This paper analyses the macroeconomic arguments behind that claim and shows they are suspect. MMT underestimates the economic costs and exaggerates the capabilities of deficit-financed fiscal policy. Those analytic shortcomings render it poor economics. However, MMT's claim that sovereign governments are financially unconstrained is proving a popular political polemic. That is because current distressed economic conditions have generated political resistance to fiscal austerity, and MMT fits the moment by countering the neoliberal polemic that government lacks fiscal space because it is akin to a household.

Beyond Modern Money Theory: a Post-Keynesian approach to the currency hierarchy, monetary sovereignty, and policy space

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.

Does the national debt matter?

In this paper, we use the Modern Money Theory framework to analyze whether government debt (and deficits) in a country with its own sovereign currency presents a problem. We argue that permanent deficits and even a rising debt ratio are normal, especially in developed nations with current account deficits. In contrast to the conventional approach, which views deficits and debt as policy variables, we demonstrate that they are ex post outcomes which depend on economic performance. Further, in nations with sovereign currency, it is hard to imagine a scenario in which a rising deficit and the debt ratio would trigger an attack by bond vigilantes, lead to government insolvency, or generate high inflation or high interest rates. The claim that debt beyond a certain threshold impairs growth is also suspect since the observed empirical correlations are likely due to lower growth creating higher deficits. Lastly, we argue that deficit and debt ratios have no bearing on a nation’s fiscal policy space, which depends on the real resources it can mobilize.

Who is Afraid of the Big Bad Debt? A Modern Money Theory Perspective on Federal Deficits and Debt

The U.S. federal government's deficit is expected to grow to over one trillion dollars in fiscal year (FY) 2020, and the national debt held by the public will likely grow to over $16.7 trillion. Budgeting scholars in the field of public administration have expressed concern over the increasing debt levels. The field of public administration, however, is largely unaware of Modern Money Theory (MMT) and the mechanics of money, which is its focus. MMT argues that understanding the mechanics of money in the U.S. financial system should lead scholars to different conclusions regarding the debt and deficit. This article presents the core arguments of the MMT perspective in this regard, with the goal to trigger further debates about debt and deficit among the community of budgeting scholars.

Sovereign Currency and Non‐Sovereign Budgets: The Modern Money Theory Approach

This paper will present the Modern Money Theory approach to government finance. In short, a national government that chooses its own money of account, imposes a tax in that money of account, and issues currency in that money of account cannot face a financial constraint. It can make all payments as they come due. It cannot be forced into insolvency. While this was well‐understood in the early post‐war period, it was gradually “forgotten” as the neoclassical theory of the household budget constraint was applied to government finance. Matters were made worse by the development of “generational accounting” that calculated hundreds of trillions of dollars of government red ink through eternity due to what neoconservatives label “entitlements” (largely, Medicare and Social Security). As austerity measures were increasingly adopted at the national level, fiscal responsibility was shifted to state and local governments through “devolution.” A “stakeholder” approach to government finance helped fuel white flight to suburbs and produced “doughnut holes” in the cities. To reverse these trends, we need to redevelop our understanding of the fiscal space open to the currency issuer—expanding its responsibility not only for national social spending but also for helping to fund state and local government spending. This is no longer just an academic debate, given the challenges posed by climate change, growing inequality, secular stagnation, and the rise of Trumpism.

The Empirical and Institutional Limits of Modern Money Theory

Modern Money Theory (MMT) economists acknowledge a number of empirical and institutional limitations on the applicability of MMT to macroeconomic policy, but they have not attempted to explore these empirically nor have they adequately addressed their implications for MMT’s main macroeconomic policy proposals. This paper identifies some of these important limitations, including those stemming from modern international financial markets, and argues that they are much more binding on the policy applicability of MMT than many of MMT’s advocates appear to recognize.

Monetary Sovereignty: Nature, Implementation, and Implications

Monetary sovereignty is a central concept of Modern Money Theory (MMT). The paper explores the characteristics of monetary sovereignty, the means used to implement it, and some of its theoretical and policy implications. Herein, it is shown that monetary sovereignty involves a high degree of coordination between the central bank and the national treasury. The paper also argues that monetary sovereignty is not special to the United States, does not require direct monetary financing of the treasury, does not tell us anything about the optimal size of the fiscal balance, and is not dependent on the willingness of foreigners to hold the domestic currency.

Introduction to Symposium: Modern Money Theory and Public Budgeting and Finance

Public Budgeting & FinanceVolume 40, Issue 3 p. 3-5 Original Articles Introduction to Symposium: Modern Money Theory and Public Budgeting and Finance James W. Douglas, Corresponding Author James W. Douglas jwdougla@uncc.edu jwdougla@uncc.eduSearch for more papers by this authorRobert S. Kravchuk, Robert S. KravchukSearch for more papers by this author James W. Douglas, Corresponding Author James W. Douglas jwdougla@uncc.edu jwdougla@uncc.eduSearch for more papers by this authorRobert S. Kravchuk, Robert S. KravchukSearch for more papers by this author First published: 10 June 2020 https://doi.org/10.1111/pbaf.12253 James W. Douglas is a Professor in the Department of Political Science and Public Administration, University of North Carolina at Charlotte, Charlotte, North Carolina. He can be reached at jwdougla@uncc.edu. Robert S. Kravchuk is a Professor in the Paul H. O'Neill School of Public and Environmental Affairs, Indiana University Bloomington, Bloomington, Indiana. He can be reached at kravchuk@indiana.edu. Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL Share a linkShare onFacebookTwitterLinkedInRedditWechat No abstract is available for this article. Volume40, Issue3Fall 2020Pages 3-5 RelatedInformation

Financing a Green New Deal

The Great Depression galvanized the New Deal in the United States to recover the economy, relieve the poor and unemployed, and reform the financial backbone of the country. Today, the impending adverse effects of climate change have governments proposing analogous Green New Deals. Recently in Energy Research & Social Science, Galvin and Healy critically examine the economic viability and wide-spanning societal, monetary, and environmental implications of the US Green New Deal proposals.

Rethinking China’s local government debts in the frame of modern money theory

Local government debt is a great threat to China’s financial stability. Local government debt in China is in a dynamic process of financial innovation. The competition of local officials for promotion and the characteristics of China’s fiscal system are the reasons behind the growth in local government debt. The yardstick for the promotion competition is the local GDP growth rate and this drives local officials to increase expenditure to achieve their targets. Because in China’s fiscal system the central government often gives priority to reducing its fiscal deficit and the central government can largely determine the distribution of revenue and expenditure between itself and local governments, there is a tendency for the fiscal burden to be shifted from the central government to the local governments. Resolving China’s local government debt problem requires not only strengthening regulation, but also abandoning the central government’s fiscal balance target, because this target may make regulation hard to sustain in times of economic downturn. This paper discusses central-local fiscal relations in the framework of Modern Money Theory, suggesting that China’s central government should bear more fiscal burden because a central government with currency sovereignty can always afford any spending denominated in its own currency.

RMB Internationalization and Financing Belt-Road Initiative: An MMT Perspective

The Belt Road Initiative (BRI) is a global development plan that sets out to invest trillions of dollars in infrastructure within the coming decade in over 60 countries. Financing the BRI has come mainly from the Chinese government funded development banks, commercial banks and investment funds. BRI investment has done primarily in the US dollar, which is not a sovereign currency for the Chinese government. As China’s current account surplus narrowed and foreign exchange reserves shrank, the affordability of the BRI becomes questionable. From the Modern Money Theory’s perspective, it is much more desirable, or even necessary, to use the Chinese RMB as the main investment vehicle currency. However, despite the RMB internationalization efforts by the Chinese government in the recent years, especially after the 2008 Global Financial Crisis, RMB internationalization is still quite limited. Financing BRI presents a difficult dilemma for China because on the one hand, continuing with dollar investment requires much capital account and exchange rate management, which hinders RMB internationalization; on the other hand, RMB internationalization, which is desirable for BRI investment, requires more liberalization of the capital account and exchange rate regime. Based on the Modern Money Theory, this paper reveals some of the implications of the connections between RMB internationalization and BRI financing.

Payment vs. Funding: The Law of Reflux for Today

The analytical tension in post-Keynesian thought between the theory of endogenous (credit) money and the theory of liquidity preference, brought to our attention by Dow and Dow (1989), can be viewed through the lens of the money view (Mehrling 2013) as a particular case of the balance between the elasticity of payment and the discipline of funding. Further, updating Fullarton’s 1844 “law of reflux” for the modern condition of financial globalization and market- based credit, the same money view lens offers a critical entry point into Tobin’s fateful 1963 intervention “Commercial Banks as Creators of ‘Money’” which established post-war orthodoxy, and also to the challenge offered by so-called Modern Money Theory.

Modern Money Theory: A Critical Assessment and a Proposal for the State As Innovator of First Resort

ABSTRACT Modern Money Theory (MMT) describes the functioning of a pure credit economy, assuming that the state can finance public spending via monetisation on the part of the central bank: in this light MMT proponents maintain that taxation and bond issues are irrelevant to public deficit financing. Another feature peculiar to MMT is the belief that expansionary fiscal policies can guarantee full employment in a condition where the state acts as an employer of last resort (ELR). The aim of this paper is threefold: (a) to understand and rationalise the logical framework of MMT (Section 2.1); (b) to address some of the controversial issues of this approach, with particular regard to the ELR programme proposal and to the actual role played by taxation and bonds in public deficit financing (Section 2.2); (c) to propose an extension of the ELR programme, arguing that it can be used for the application of innovations by the state (Section Three).

The 'Kansas City' Approach to Modern Money Theory

Modern money theory (MMT) synthesizes several traditions from heterodox economics. Its focus is on describing monetary and fiscal operations in nations that issue a sovereign currency. As such, it applies Georg Friedrich Knapp’s state money approach (chartalism), also adopted by John Maynard Keynes in his Treatise on Money. MMT emphasizes the difference between a sovereign currency issuer and a sovereign currency user with respect to issues such as fiscal and monetary policy space, ability to make all payments as they come due, credit worthiness, and insolvency. Following A. Mitchell Innes, however, MMT acknowledges some similarities between sovereign and non-sovereign issues of liabilities, and hence integrates a credit theory of money (or, “endogenous money theory,” as it is usually termed by post-Keynesians) with state money theory. MMT uses this integration in policy analysis to address issues such as exchange rate regimes, full employment policy, financial and economic stability, and the current challenges facing modern economies: rising inequality, climate change, aging of the population, tendency toward secular stagnation, and uneven development. This paper will focus on the development of the “Kansas City” approach to MMT at the University of Missouri–Kansas City (UMKC) and the Levy Economics Institute of Bard College.

Modern Money Theory, Its Theoretical Structure and Examining from Tax and Budget Theory of Public Finance

Modern Money Theory, Its Theoretical Structure and Examining from Tax and Budget Theory of Public Finance

Dollarization in Central and Eastern European countries: essence, genesis, interrelation

The paper is devoted to scientific-theoretical and econometric analysis of dollarization on the example of Central and Eastern European countries. The views of scientists on the essence of the investigated category are generalized; the presence of high degree pluralism, particularly among Ukrainian researchers is determined. The authors’ definition, according to which the necessary conditions for dollarization in the economy such as: the recognition by residents the ability of foreign currency to perform one or more national money’s functions and systematic use of such currency in cash and/or non-cash circulation is given. Three-dimensional classification of dollarization, consistent with the modern money theory, according to the criteria of penalty, state recognition and performance of specific money’s functions is presented. Genesis and manifestations of inferred types are investigated. The global level of commitment to the U.S. dollar as the most common settlement and reserve currency is defined according to the global statistics of cross-border payments and the currency composition of the official central banks’ reserves. Methodological approaches for determining the level of dollarization of the economy, the most common of which – dollarization of money supply according to IMF and external debt–to–GDP ratio illustrated by statistics of 9 Central and Eastern European countries with own currencies are analyzed. It is determined that the high level of dollarization indicates the substitutionary competition between national and foreign money, where the latter are considered as a key factor for entering the global financial and commodity markets. According to the results of construction, estimation and re-estimation of BVAR dollarization model of Ukraine, Belarus, Poland and Russia, the significant causal relationship between the share of the currency component in the money supply of Russia and Poland and the corresponding indicators of Belarus and Ukraine is proved. This substantiates the previous conclusions about the unity of the dollarization evolutionary logic in historically close economies. The need for further empirical research of provoking and restraining factors of dollarization in Central and Eastern European countries is emphasized.

The MMT Free Lunch Mirage Can Lead to a Perverse Outcome

Modern Money Theory is hot. It argues federal deficits do not typically matter. But what happens when the economy reaches full employment? This economist provides a highly accessible rebuttal to the MMT advocates.

Las deficiencias de política de la Teoría Monetaria Moderna

<p>Reseña al libro de Epstein, Gerald. <em>What’s Wrong with Modern Money Theory? A Policy Critique</em>. Palgrave Pivot; 1st ed. 2019 edition (August 10, 2019).</p><div><br clear="all" /><div><p> </p></div></div>