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Revisiting MMT, Sovereign Currencies and the Eurozone: A Reply to Marc Lavoie
... To mitigate bondholders' "too risky" perception, the Eurozone enacted significant policy changes during the debt crisis and COVID-19 pandemic. Central to countering fragmentation was the Eurosystem's emerging role as a major holder of government securities, mirroring the ECB effectively supporting member state's liabilities (De Grauwe & Ji, 2022;Ehnts & Wray, 2024). However, the post-pandemic shift toward reinforcing market discipline highlights that "too safe" remains undesirable to Eurozone institutions. ...
... However, this asymmetry was less pronounced than during the debt crisis and quickly dissipated. Unlike in the debt crisis, the ECB acted as a purchaser of last resort from the outset (De Grauwe & Ji, 2022;Ehnts & Wray, 2024), mitigating the asymmetrical role of foreign investors. Therefore, this temporary shift in the institutional approach to government securities contributed to explaining the easing in foreign purchases asymmetries. ...
This paper analyses the role of sovereign investor groups in shaping financial instability and asymmetries within the Eurozone and their interaction with its institutional framework. It proposes a framework to assess the impacts of government debt outflows on countries' financial fragility under varying scenarios, including different paces of Quantitative Tightening (QT) and evolving investor group dynamics. Our findings indicate that foreign investors play a potential asymmetrical role in the Eurozone, exhibiting destabilising behaviour towards peripheral government debt. This uneven role can be exacerbated by a market-based institutional approach to public debt or mitigated by appropriate support for these state liabilities. By combining the impacts of QT with the potential reemergence of foreign flow asymmetries in sovereign markets, our findings highlight that such dynamics could further deepen the Eurozone's core-periphery divide.
... In this way, the financial sector would discipline the government by setting interest rates on government debt instruments. Having tried this institutional approach for more than 20 years in the Euro Area (EA), it seems safe to say that it does not work (Ehnts and Wray, 2024). Governments forced into austerity have punished their population with unemployment, slower income growth and rising poverty rates. ...
As we will argue in this chapter, the idea that a government can fund itself without
a central bank is doubtful to begin with. It seems that there is no clarity regarding
terms such as ‘funding’ or ‘financing’. In order to understand the issue of LOLR and
DOLR more clearly, we discuss the creation of a monetary system from a logical
perspective. We claim that the central bank is always the natural LOLR or DOLR for
the government, since the central bank is the only currency issuer. The government
would not transfer the creation of currency to an independent central bank without
ensuring its own liquidity and solvency. Moreover, the government can always change
the legal framework of its central bank. Knowing this, the central bank will not risk
its formal independence and confront the government. We recognise that the creation of a central bank, just like the creation of money, is
foremost a legal and therefore a political issue (Knapp, 1924). After a brief summary
of the MMT perspective on the monetary system, we examine a Treasury and a
central bank in a Wicksellian pure cash economy (Wicksell, 1898). Subsequently,
we analyse a more realistic pure credit economy. We find that the usual textbook
representation of public finance is only valid when the government transfers the
creation of currency to a central bank completely, which is not allowed to act as a LOLR or a DOLR. However, as section five argues, this arrangement seems to
describe parts of reality at best only in the EA from 1999 to 2011. We argue that
the sovereign debt crisis in the EA has been self-inflicted and conclude that the EA
needs to be reformed to become a stable currency area.
... Lavoie (2022) argues that the crisis was "essentially the consequence of flawed institutional arrangements," pointing to the lack of a federal government and the absence of outright public debt purchases by the ECB. According to proponents of MMT, the Eurozone's flaw lies in its members becoming users of an "external currency" without proper institutions to back government debt (Ehnts & Wray, 2024;Papadimitriou & Wray, 2012). ...
This paper examines the financial mechanisms that reflect and entrench the financial subordination of the Eurozone periphery within the monetary union. It argues that the exacerbation of financial asymmetries during the debt crisis and their relative softening during the pandemic are closely linked to the evolving Eurozone approach to government securities. It proposes a new framework centred on what is here termed the "Eurozone's contradiction", a concept that encapsulates the potential tension between the uneven discipline of finance and the monetary union`s perpetuation. When this tension becomes unsustainable, institutional changes and shifts in economic policy are required to preserve the common currency area. These developments, in turn, influence regional government debt hierarchies and shape the variegated financial subordination of the Eurozone periphery.
The concept of monetary sovereignty employed by Modern Monetary Theory has been criticised on many fronts. One of the most important criticisms points out that Modern Monetary Theorists (MMTers) ignore or underestimate problems arising from external constraints. Another important (and complementary) criticism is that MMTers focus only on purely macroeconomic aspects and ignore political and geopolitical issues. In this paper, we discuss these important criticisms and we conclude that, although the MMT concept of monetary sovereignty is useful and can be considered an analytical advance, it is incomplete and biased because it minimises macroeconomic problems arising from external constraints and because it does not take into account international political factors.
This paper aims to investigate the relationship between external imbalances and poverty in the Eurozone. The former are registered through the Target2 (T2) settlement mechanism and can be assimilated into changes in official reserves to cover the balance of payments disequilibrium in a fixed exchange rate regime. The presence of T2 discrepancies has led to differences in interest rates and increased distances in general living conditions inside the Eurozone. An empirical investigation implemented in 11 Eurozone countries reveals that T2 is negatively correlated with poverty, therefore allowing for an interpretation that approximates balance of payment crisis models. Results that appear to be robust to several control variables suggest that the policy framework of the Eurozone—in the absence of a compensatory mechanism—should be revised towards centralised fiscal instruments and anti-speculative monetary interventions.
In the November/December 2021 issue of Intereconomics, Françoise Drumetz and Christian Pfister examine Modern Monetary Theory (MMT) and approach it from the policy consequences that would follow. This paper is a reply to Drumetz and Pfister. It restates the core of MMT and offers some suggestions for central banks. Theories are explanations of what we see, and MMT describes money creation and destruction. Hence, MMT cannot be and is not a political manifesto. In contrast to most other theories of money, MMT is falsifiable in its core statements, which are based on a balance sheet approach to macroeconomics. Since many central banks already educate the public about the creation of modern money through bank lending, it would be most welcome if they would do the same for the creation of modern money through government spending. Here, MMT and central bankers can find common ground to move forward and leave the theory of loanable funds and that of the money multiplier behind.
In this paper, we develop a Keynesian–structuralist perspective on the origins and implications of the currency hierarchy in the international monetary and financial system. We show that international asymmetry in monetary affairs results in structural implications for peripheral economies. Our main hypothesis is that the international asymmetry related to the currency hierarchy, amplified by financial globalization, imposes major constraints on the adoption of Keynesian policies in these economies. These vary over time and space and depend on certain structures, such as the specific global monetary regime, as well as on domestic institutions and policy variables. For this purpose, we first develop the concept of currency hierarchy and then discuss the structural policy space limitations for the countries at the bottom of this hierarchy. Finally, we provide some brief reflections on the challenges connected to climbing this hierarchy.
The traditional endogenous money approach can be generalised substantially by including the insights of Modern Money Theory
regarding the necessary coordination of fiscal and monetary policies. A monetarily sovereign government is composed of two
entities involved in the issuance and redemption of government monetary instruments. As such, one should include the role
of the Treasury in monetary policy and the role of the central bank in fiscal policy. The paper suggests a simple way to model
that interaction, shows some of the theoretical insights that can be drawn from that interaction and illustrates the relevance
of that interaction with the monetary and fiscal practices of the US Treasury and the Federal Reserve over the past century.
Times of stress in the monetary system, such as the recent Great Recession, usually bring to light more forcefully this necessary
interaction.
Die Theorie von Geld und Kredit standen in den letzten Jahren so stark im Mittelpunkt wie lange nicht mehr. Das Zusammenspiel der Zentralbank, die Zentralbankgeld oder auch Reserven schöpft, mit den Geschäftsbanken, die ihrerseits Giralgeld oder auch Einlagen schöpfen, ist zentral für €-päische Themen rund um das Zahlungssystem TARGET2, quantitative easing, lender of last resort, LTROs, die Verzinsung der Staatsanleihen und die Zinssetzung der EZB mit den seit jüngstem negativen Einlagezinsen für die Geschäftsbanken.
In dieser Veröffentlichung werden Geld und Kredit mithilfe einer bilanziellen Betrachtung erklärt. Es werden die sogenannten T-Konten, welche Forderungen und Verbindlichkeiten abbilden, für die wichtigsten Akteure erklärt. Wie schöpft eine Zentralbank Geld? Wie vergibt eine Geschäftsbank einen Kredit, und braucht sie dazu eine Ersparnis? Wie begibt der Staat eine Staatsanleihe, wo hat er sein Konto und was bedeutet das für die T-Konten der anderen Akteure?
Die gewählte Methodologie ermöglicht ein Verständnis der wesentlichen bilanziellen Zusammenhänge einer Volkswirtschaft und bietet dadurch eine alternative Sicht auf die €-päischen Themen. So folgt auf die Vorstellung der modernen Geldtheorie ein kurzes makroökonomisches Modell, welches auf den geldtheoretischen Erkenntnissen beruht. Dieses wird in der Folge auf die Eurozone angewandt. Durch die Analyse wird deutlich, dass die Probleme mit der Staatsverschuldung nicht der Auslöser, sondern eine Folge der aktuellen Krise sind. Grundlegendes Problem für den Wirtschaftskreislauf sind die Spätfolgen der Immobilienkrisen in Spanien und Irland.
Während vor Einführung des Euros weder Regierungen noch Zentralbanken in die Insolvenz gehen konnten, wurde dies durch die sogenannte "no bail-out"-Klausel aufgehoben. Nun entscheiden Finanzmärkte oder die Troika darüber, ob ein Haushalt der durch ein demokratisches Votum legitimierten Regierung eines Nationalstaats genehmigt wird oder nicht. Diese Entmündigung der Demokratie ist nicht nur ethisch fragwürdig, sondern auch makroökonomisch unsinnig.
Im letzten Teil des Buches werden die möglichen Schritte diskutiert, um Europa wieder aus der Krise zu führen. Die nachfrageseitigen Probleme werden vor dem Hintergrund der Geldtheorie und des makroökonomischen Rahmens diskutiert und einige Lösungsvorschläge analysiert. Unabdingbar scheint die Einrichtung einer staatlichen Institution, welche die Länder oder Europa als ganzes wieder in die Lage versetzt, die staatlichen Ausgaben zu erhöhen.
Auch wenn die EZB den Regierungen etwas Zeit verschafft hat, müssen wir schleunigst den Kreditkreislauf wieder in Gang bringen. Nur so können wir in Europa die Souveränität zurückgewinnen und einen großen Schritt in Richtung Beschäftigung, Wohlstand und Wachstum machen.
actions generally abstracted from the Open Market Desk’s (hereafter, the Desk’s) daily actions in the federal funds market, concentrating instead upon the strategy involved in setting intermediate targets as in the monetary policy rule and measuring monetary pol- icy literatures. On the other hand, research on the daily federal funds market primarily examined banks as lenders and borrowers of overnight funds, while abstracting from the Desk’s interventions in the market (e.g., Ho and Saunders 1985; Spindt and Hoffmeister 1988; Lasser 1992; Griffiths and Winters 1995). During the mid to late 1990s, falling required reserves due to the proliferation of retail sweep accounts left banks at risk of overdrawing their reserve accounts during the course of routine settlement of electronic payments. The result was a substantially increased daily volatility in the federal funds rate that both complicated the implemen- tation of monetary,policy and provided impetus for new research on the supply and 851 JOURNAL OF ECONOMIC ISSUES
The debates between the structuralists and horizontalists highlighted the fact that endogenous money proponents had a very different understanding of monetary operations than did neoclassical economists. Indeed, as Fullwiler (2003) reports, until recently, research among neoclassicals related to bank behavior in the U. S. federal funds market had little relation to research on the Fed’s behavior, and vice versa, aside from a few notable exceptions. This has all changed considerably since the late 1990s, as neoclassical researchers found several issues that required bringing the two together – such as concerns about policy options at the zero bound, retail sweep accounts, payments system crises, and increased use of non-central bank wholesale settlement options. Whereas a detailed understanding of monetary operations has been central to research in the endogenous money tradition for decades now, it is not a stretch to suggest that it is now also a well-established area of research within neoclassical monetary economics.There are sharp differences between the two approaches that nonetheless remain. Among neoclassicals, the literature on central bank operations is not integrated into models of financial asset pricing or into the so-called “new consensus” model of the economy. Though the latter assumes interest-rate targeting, new consensus models are concerned with the strategy of monetary policy, not the tactics or daily operations; though well-established as a research topic for journal publications, monetary policy implementation remains “a side issue” in neoclassical monetary theory graduate textbooks like Walsh (2003) (Bindseil 2004, 1). Further, neoclassicals still do not consider money to be endogenously created in the banking system, as Marc Lavoie repeatedly notes; indeed, as Charles Goodhart has argued in a series of recent papers, there is in fact no private banking system whatsoever in the new consensus model (e.g., Goodhart 2008a).This is disappointing, naturally, since the evidence published in the recent neoclassical literature on central bank operations has in fact been remarkably consistent with the endogenous money view of central bank operations. The horizontalist view that central banks only target interest rates directly (not reserve or monetary aggregates) and can do so as precisely as desired has been in particular repeatedly supported by this literature. While the relevant literature could fill several volumes, of special note here is the book by Ulrich Bindseil (2004), former Head of the ECB’s Liquidity Management Section, which describes in substantial detail the operations of the Fed, ECB, and Bank of England in a manner that very nearly resembles the horizontalist story.The purpose of this chapter is to describe ten general principles of modern central bank operations. These ten principles are not intended to be exhaustive or comprehensive; neither are the discussions of the individual principles necessarily exhaustive. Rather, these principles represent “what every economist should now be expected to know” given the large quantities of orthodox and heterodox research in this area and the empirical or anecdotal evidence contained in speeches and publications of central bank officials. As noted already, this research generally confirms the earlier points made by Moore (1988) and other authors associated in one way or another with the horizontalist literature
This paper is an answer to the question: What is new, what is good and what is relevant for Eurozone countries in Modern Monetary Theory (MMT)? The answer is organized under six questions: (1) What is MMT? (2) What is the definition of a sovereign currency — an important concept for MMT authors? (3) Does the institutional setup play any role in assessing monetary sovereignty? (4) Is the euro a foreign currency for eurozone countries, that is, are eurozone countries currency users or currency issuers? (5) Why could there be a eurozone financial crisis and was it a balance-of-payment crisis, as a number of authors have claimed? (6) And as a conclusion, what is the future of the Eurozone? It is argued that MMT is part of the Institutionalist branch of post-Keynesian economics; that the current definition of a sovereign currency is insufficient; that the Eurozone crisis arose from the combination of Maastricht-like rules and the convention that the European Central Bank would not act as a purchaser of last resort; and that this crisis can only be taken to be a balance-of-payment crisis when considering that bond investors thought some countries would leave the Eurozone and face currency depreciation.
This book describes the history of European integration and the Eurozone, before presenting ways in which the European Union can move forward. Charting integration from before the Second World War, the foundations of the Eurozone are examined to provide insight into the challenges faced by the European Union, including the Global Financial Crisis, over recent decades. The impact of TARGET2 and the European Monetary System are also discussed.
This book aims to highlight ways that current challenges to European integration, such as the COVID-19 crisis, environmental degradation, and fiscal debt, can be overcome to promote economic growth and social advancement. It will be relevant to students, researchers, and policymakers interested in the political economy and European economic policy.
The most pressing challenges for Europe’s future are the overcoming of the euro crisis and the consequences of the Covid-19 pandemic, the fight against inequality and unemployment, and, above all, the socio-ecological transformation towards a sustainable economic system. The euro crisis has shown that it is necessary for the ECB to act as a dealer of last resort for government bonds of euro area countries. Otherwise, yields will increase and governments will lose the only macroeconomic policy tool that they have left: fiscal policy. During the pandemic, the Pandemic Emergency Purchase Programme (PEPP) has assured that this mis- take was not repeated. The results are much better than in the early 2010s. The increase in public deficits and debts is a consequence of this change in economic policy-making. There is, however, nothing wrong with public debt once it is framed as the money that the government spent but did not yet tax back from households and firms.
The coronavirus crisis reveals the shortcomings of the Euro Area (EA), which were already evident after the global financial crisis. We show that the self-imposed constraints within the EA have prevented a recovery in the last decade. However, the suspension of the stability and growth pact and recent measures of the European Central Bank have broken the chains. We recommend that national governments make use of their regained sovereignty inside the EMU framework and do not wait for European-wide solutions. In addition, we provide policy proposals consistent with the current EA framework.
This book discloses the economic foundations of European fiscal and monetary policies by introducing readers to an array of alternative approaches in economics. It presents various heterodox theories put forward by classical economists, Marx, Sraffa and Keynes, as a coherent challenge to neo-classical theory. The book underscores and critically assesses the analytical inconsistencies of European economic policy and the conservative nature of the current European governance. In this light, it examines the political obstacles to proposals to reform the European monetary union, as well as those originating in the neo-mercantilist German model. Given its scope and format, the book offers a valuable asset for researchers and members of the general public alike.
HERE IS THE LINK TO FULL TEXT AS OF MARCH 2021... https://sci-hub.st/https://doi.org/10.1111/pbaf.12249
Modern Monetary Theory (MMT) argues that the interest rate on the national debt for a monetary sovereign is a policy variable, not subject to whether bond markets “accept” or “reject” it. This paper defines measures of the components of the standard analysis of fiscal sustainability. It then methodically describes the Federal Reserve's operations relevant for understanding why interest rates on
government debt in the United States have been and continue to be driven by monetary policy. A corollary that emerges—“printing money,” as economists usually understand it—is not applicable and has never been advocated by MMT.
Zusammenfassung: Modern Monetary Theory (MMT) ist ein keynesianischer Ansatz, der Geld in den Mittelpunkt der Analyse stellt und die Rolle des Staates in einer geldvermittelten Marktwirtschaft herausarbeitet, in der Vollbeschäftigung weder den Normalfall noch ein Gravitationszentrum darstellt. In der wirtschaftspolitischen Debatte polarisiert MMT durch Aussagen wie ein moderner Staat könne nie ein Solvenzproblem haben und unterliege keiner Budgetrestriktion. Derartige wirtschaftspolitische Schlussfolgerungen vernachlässigen wesentliche Elemente des theoretischen Rahmens und blenden gerade jene Aspekte der Makropolitik aus, die ein Abwägen zwischen verschiedenen Risiken bzw. unterschiedlichen Zielen erfordern. Budgetdefizite können zwar erforderlich sein, um wirtschaftliche Stabilität und einen hohen Beschäftigungsstand zu erreichen, der Staat kann Budgetdefizite aber selbst im Falle von Unterbeschäftigung nicht in beliebiger Höhe monetisieren, da der Wert des Geldes von seiner Knappheit abhängt.
Capital Markets Union is a large-scale political project to strengthen and further integrate European market-based finance. An initiative of the European Commission under Jean-Claude Juncker’s leadership, Capital Markets Union seeks to realize a long-standing goal of European policy makers: a financial system in which capital markets will absorb more of citizens’ savings and play a greater role in corporate finance. Market-based banking, too, is set to benefit from Capital Markets Union, which includes measures to revive the European securitization market. Given that market-based finance – or shadow banking – shouldered much of the blame for the financial crisis of 2007–2008, its resurgence as a policy priority of the European Union constitutes a puzzle. The present article lays the theoretical groundwork for a special issue that tackles this puzzle. It argues that rather than an end in itself, Capital Markets Union represents an exercise in ‘governing through financial markets’. Pioneered in the United States, governing through financial markets is a political strategy adopted by state actors in pursuit of policy goals that exceed their institutional capacity.
A lot of people throughout Europe have suddenly realized that they know hardly anything about the Maastricht Treaty while rightly sensing that it could make a huge difference to their lives. Their legitimate anxiety has provoked Jacques Delors to make a statement to the effect that the views of ordinary people should in future be more sensitively consulted. He might have thought of that before.
This book provides a new methodological approach to money and macroeconomics. Realizing that the abstract equilibrium models lacked descriptions of fundamental issues of a modern monetary economy, the focus of this book lies on the (stylized) balance sheets of the main actors. Money, after all, is born on the balance sheets of the central bank or commercial bank. While households and firms hold accounts at banks with deposits, banks hold an account at the central bank where deposits are called reserves. The book aims to explain how the two monetary circuits – central bank deposits and bank deposits – are intertwined. It is also shown how government spending injects money into the economy.
In a completely revised and updated second edition, Randall Wray takes a new approach to macroeconomics that challenges conventional wisdom and uncovers how money 'works' in the modern economy. This book synthesizes the key principles of Modern Money Theory, exploring macro accounting, monetary and fiscal policy, currency regimes and exchange rates in developed and developing nations. Randall Wray addresses the pressing issue of how misunderstandings about the nature of money have caused the current global financial meltdown, and provides fresh ideas about how policymakers around the world should address the continued weaknesses in their economies.With new chapters on tax policies and inflation, this second edition reasserts the importance of the Modern Money Theory approach and how Wray has changed the way we look at the economy.
Eurozone Dystopia traces the origin of the Eurozone and shows how the historical Franco-German rivalry combined with the growing dominance of neo-liberal economic thinking to create a monetary system that was deeply flawed and destined to fail. It argues that the political class in Europe is trapped in a destructive groupthink which prevents it from seeing their own policy failures. Millions are unemployed as a result and the member states are caught in a cycle of persistent stagnation and rising social instability.
A number of post-Keynesian authors, called the neo-chartalists, have argued that the government does not face a budget constraint similar to that of households and that government with sovereign currencies run no risk of default, even with high debt-to-GDP ratio. This stands in contrast to countries in the eurozone, where the central bank does not normally purchase sovereign debt. While these claims now seem to be accepted by some economists, neo-chartalists have also made a number of controversial claims, including that the government spends simply by crediting a private-sector-bank account at the central bank; that the government does need to borrow to deficit-spend; and that taxes do not finance government expenditures. This paper shows that these surprising statements do have some logic, once one assumes the consolidation of the government sector and the central bank into a unique entity, the state. The paper further argues, however, that these paradoxical claims end up being counter-productive since consolidation is counter-factual.
The eurozone's TARGET2 payments system has featured heavily in academic and popular discussions of the euro crisis. Some of this commentary has described the system as being responsible for a ‘secret bailout’ of Europe's periphery. Another common theme has been that the system has built up large credit risks for Germany should the euro break up. This paper discusses the TARGET2 system, focusing in particular on how it impacts the balance sheets of the central banks that participate in the system. It discusses the factors driving TARGET2 balances, considers some counterfactual cases in which eurozone monetary policy might have operated differently, examines the risks to Germany and considers proposals for settlement of these balances.
— Karl Whelan
Social unrest across Europe is growing as Euroland's economy collapses faster than the United States', the result of falling exports and a weaker fiscal response. The controversial title of this brief is based on a belief that the nature of the euro itself limits Euroland's fiscal policy space. The nations that have adopted the euro face "market-imposed" fiscal constraints on borrowing because they are not sovereign countries. Research Associate Stephanie A. Kelton and Senior Scholar L. Randall Wray foresee a real danger that these nations will be unable to prevent an accelerating slide toward depression that will threaten the existence of the European Union.
This paper examines, from the perspective of sovereign versus non-sovereign governments, the financial implications of the European Community's adoption of a single currency. The Euro has made traveling between countries more convenient, but there are larger problems: deteriorating public infrastructure, crumbling social services, rising unemployment, and simmering social unrest. To the optimist, these costs are temporary: Once inflation and budgets have been controlled, the single currency is supposed to allow all of Euroland to enjoy the same interest rate by eliminating currency risks; further, sounder fiscal policy will ensure that the interest rate remains low. How likely is this scenario? I contend that the adoption of the Euro ignored the substantial costs to a nation of abandoning its own currency in favor of a foreign currency and, because of this, the proposed benefits will not be realized. The ability of a sovereign government with a floating currency to make payments is not revenue-constrained, and it can issue securities at any rate it desires. In contrast, a non-sovereign government must obtain dollars/Euros before it can spend them, and it cannot exogenously set the interest rate. Rather, market forces determine the interest rate at which it borrows. This paper examines the prospects of Euroland in the context of the Argentinian experience with a "dollarized" currency and of the debt ratios of Eurostates in comparison to those of US states.
There have been a number of estimates of the total amount of funding provided by the Federal Reserve to bail out the financial system. For example, Bloomberg recently claimed that the cumulative commitment by the Fed (this includes asset purchases plus lending) was 29 trillion.
The article discusses various issues related to money creation and the state. Chartalists believe that attempts at separating the central bank's and the treasury's functions is merely confused discussion. Indeed, as economist L. Wray clearly states in response to previous critiques, it should be obvious, but it usually does not appear to be so that central bank liabilities do not differ in any significant degree from treasury liabilities; in other words, they can treat both as essentially high powered money or liabilities of the state. In this sense, Wray proposes to simply consolidate the central bank and the treasury, calling the conglomerate the State, and combine treasury and central bank liabilities into a high-powered money or fiat money. This is precisely the crucial point that we have chosen to question here with reference to bookkeeping and central bank practices. In many countries law from directly financing state deficits has prohibited the central bank. Treasuries have to sell bonds to commercial banks, which in their turn may sell them to the central bank to obtain high-powered money.
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Consenso e contrassenso: por uma economia não dogmática
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Proposals for a Reform of the EU's Fiscal Rules and Economic Governance
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