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Citation: Cruz-Hidalgo, E., Medina-
Miltimore, S., & Mario, A. (2025).
Currencies Come and Go, But
Employment Always Takes Root:
Rethinking External Constraints and
Monetary Sovereignty in the
Periphery. Economies,13(1), 9.
https://doi.org/10.3390/
economies13010009
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Article
Currencies Come and Go, But Employment Always Takes Root:
Rethinking External Constraints and Monetary Sovereignty in
the Periphery
Esteban Cruz-Hidalgo 1, * , Stuart Medina-Miltimore 2and Agustín Mario 3
1Department of Economics, University of Extremadura, 06006 Badajoz, Spain
2
International Doctoral School, University of Extremadura, 06006 Badajoz, Spain; smedinam@alumnos.unex.es
3Department of Economics and Administration, National University of Moreno,
Moreno B1744OHC, Buenos Aires, Argentina; amario@unm.edu.ar
*Correspondence: ecruzh@unex.es
Abstract: This paper explores a development strategy for peripheral economies by advo-
cating for a paradigm shift from traditional economic models that rely on accumulating
foreign reserves. It proposes the job guarantee (JG) policy, an automatic stabilizer based
on a reserve pool of employed individuals, as a cornerstone for fostering sustainable and
inclusive growth. Grounded in modern monetary theory (MMT), this study critiques
the conventional approach that prioritizes external reserves and highlights the potential
of MMT in offering a more autonomous development path for developing countries. A
systematic review of the literature, using the PRISMA methodology, reveals significant di-
vergence between MMT advocates and critics, particularly regarding monetary sovereignty
and the feasibility of implementing macroeconomic policies in peripheral economies. This
study emphasizes that while external constraints remain, the MMT perspective calls for
flexible exchange rates, low interest rates, and capital controls as part of a broader strategy
to reduce dependency on foreign currencies. The proposed approach prioritizes full em-
ployment, the mobilization of domestic resources, and structural transformation through
policies like import substitution. Although the shift may involve the slower accumulation
of capital, it offers a more equitable and stable development path. Ultimately, this analysis
underscores the potential of MMT to expand the external constraint and enable sustainable
development, despite challenges in implementation and political resistance.
Keywords: job guarantee; full employment; sustainable development; flexible exchange
rates; peripheral economies; modern monetary theory; developmentalism; structuralism;
employer of last resort; macroeconomic policies
1. Introduction
This paper explores a development strategy for peripheral economies, proposing a
paradigm shift that reorients the traditional approach toward a more stable and autonomous
perspective. In contrast to the conventional goal of accumulating foreign reserves as a
means of fostering economic growth and employment, this work advocates for the imple-
mentation of an automatic stabilizer based on a reserve pool of employed
individuals—the
job guarantee (hereinafter JG), also known as the employer of last resort (ELR), policy. This
program serves as a cornerstone of a sustainable and inclusive development strategy.
The theoretical foundation for this approach lies in modern monetary theory (here-
inafter MMT), an emerging economic paradigm that challenges traditional conceptions
Economies 2025,13, 9 https://doi.org/10.3390/economies13010009
Economies 2025,13, 9 2 of 20
of fiscal and monetary policy. By focusing on monetary sovereignty and functional fi-
nance, MMT provides an innovative alternative for developing countries, especially as a
response to the implicit surrender that entails relying on the occasionally favorable, though
volatile, winds of external agents’ decisions to escape the position assigned to them in the
internationally imposed social division of labor.
As we will discuss, MMT posits that sovereign states are not constrained by the need
to maintain balanced budgets or adopt austerity policies. Rather, they can implement
expansive fiscal policies geared toward achieving full employment and price stability.
This entails a paradigm shift from the conventional approach of sacrificing domestic
resources to maintain a favorable exchange rate and avoid external constraints, advocating
instead for policies such as the JG, which ensure full employment and maximize the use
of available domestic resources. Critics of MMT, however, raise concerns about whether
this approach adequately addresses external constraints and maintains the fiscal balance
needed for exchange rate stability. They argue that policy choices are not purely political
decisions but are influenced by external factors. Despite these critiques, MMT offers
responses by proposing a flexible exchange rate policy and the full mobilization of domestic
resources, providing an innovative solution to the problem of involuntary unemployment
and fostering economic stability without relying on austerity policies.
The primary objective of this work is to rethink the development strategy of peripheral
economies, proposing an approach that prioritizes stability and autonomy. The aim is
to avoid perpetuating dependency on foreign currencies and the trap of financialization,
promoting instead capital accumulation through policies that mobilize the unemployed
workforce and redirect resource allocation toward productive sectors. Throughout this
research, we will conduct a systematic review of the positions within the debate on MMT’s
application in developing countries, by using the PRISMA methodology. The findings
will serve as a basis for establishing the terms of the discussion and for reflecting on the
opportunities that an alternative such as MMT offers in comparison with the conventional
approach of accumulating foreign reserves. This paper is part of a research project address-
ing a gap identified in the literature regarding the application of the MMT approach to less
developed countries, and it complements the pioneering work developed by Kaboub (2008)
and Sylla (2023).
The remainder of this paper is structured as follows: After the introduction, justifying
the aim of the study, Section 2.1. develops the methodology used to choose the papers
reviewed, which is based on the PRISMA methodology. Section 2.2. consists of a critical
review of selected works. In the third part we discuss the results of the previous section
and try to obtain inferences and propose policies from the MTT approach. Finally, the
fourth section concludes and advances future lines of research.
2. Monetary Sovereignty and the Periphery: A Review of the Problem
2.1. Methodology of Paper Selection
Given the popularity of MMT in media and social networks, attention to this approach
has extended into the academic sphere. To examine how and in what terms this debate has
translated into indexed journals—and specifically for the study of economically peripheral
countries or so-called developing countries—a systematic review was conducted using the
PRISMA method (Preferred Reporting Items for Systematic Reviews and Meta-Analyses).
1
The following search terms were used in the WOS and Scopus databases: (“modern money
theory” OR “modern monetary theory”) AND (“developing countries” OR “periphery”
OR “sovereignty”). Both searches were conducted on 23 October 2023.
The decision to use these two internationally recognized databases is justified by
their influence on academic career development. For this reason, we believe that they
Economies 2025,13, 9 3 of 20
will best reflect the extent to which the issue under analysis holds a place of interest in
researchers’ agendas and since when. In WOS, the search was conducted by “topic”,
whereas in Scopus, it used “Article title, Abstract, Keywords”. From these searches, we
identified 23 publications in WOS and 31 in Scopus.
The search results were refined by inclusion and exclusion criteria following a two-step
strategy. In the first step, we applied the criteria available within each database, refining the
search by document type and language. Additionally, by selecting the option for secondary
documents in Scopus, seven additional texts were retrieved. Only two of these texts were
journal articles and thus were included in this study.
As a result of this selection process, we obtained 20 publications in WOS and 28 in
Scopus, totaling 30 unique texts after removing duplicates between the two databases. The
temporal evolution of these publications is shown in Figure 1. As can be seen, the temporal
dynamics of publications on this topic are directly related to the increased prominence of
MMT in public debate, particularly due to fiscal stimulus measures introduced worldwide
to combat the COVID-19 pandemic.
Economies 2025, 13, x FOR PEER REVIEW 3 of 21
databases: (“modern money theory” OR “modern monetary theory”) AND (“developing
countries” OR “periphery” OR “sovereignty”). Both searches were conducted on 23 Oc-
tober 2023.
The decision to use these two internationally recognized databases is justified by
their influence on academic career development. For this reason, we believe that they will
best reflect the extent to which the issue under analysis holds a place of interest in re-
searchers’ agendas and since when. In WOS, the search was conducted by “topic”,
whereas in Scopus, it used “Article title, Abstract, Keywords”. From these searches, we
identified 23 publications in WOS and 31 in Scopus.
The search results were refined by inclusion and exclusion criteria following a two-
step strategy. In the first step, we applied the criteria available within each database, re-
fining the search by document type and language. Additionally, by selecting the option
for secondary documents in Scopus, seven additional texts were retrieved. Only two of
these texts were journal articles and thus were included in this study.
As a result of this selection process, we obtained 20 publications in WOS and 28 in
Scopus, totaling 30 unique texts after removing duplicates between the two databases. The
temporal evolution of these publications is shown in Figure 1. As can be seen, the temporal
dynamics of publications on this topic are directly related to the increased prominence of
MMT in public debate, particularly due to fiscal stimulus measures introduced worldwide
to combat the COVID-19 pandemic.
Figure 1. Publications on MMT and developing countries (2017–2023). Note: own elaboration.
Clearly, as shown in Figure 1, there has been a growing effort within the academic
community since 2020 to discuss and study, through the framework of MMT, the specific
policies and contexts of developing countries.
Table 1. Inclusion and exclusion criteria used to refine the search.
Inclusion Exclusion
Article Communication to a conference, book chapter,
or book data
English, Spanish, or Portuguese Other languages
Scope of the study: developing or pe-
ripheral countries
Developed countries or discussion of theoreti-
cal foundations
0
2
4
6
8
10
12
2016 2017 2018 2019 2020 2021 2022 2023
Number of Publications
Figure 1. Publications on MMT and developing countries (2017–2023). Note: own elaboration.
Clearly, as shown in Figure 1, there has been a growing effort within the academic
community since 2020 to discuss and study, through the framework of MMT, the specific
policies and contexts of developing countries.
In a second step, additional inclusion and exclusion criteria were applied to select the
articles to be included in the review (Table 1). After reading the abstract of each study, a
second round of exclusions was conducted, removing articles that do not directly discuss
or study the contexts of developing or peripheral countries from an MMT perspective.
Thus, we excluded (i) studies that base their analysis on a conception of sovereignty
used to address issues such as the energy transition, degrowth, or pandemic response;
(ii) those focused on developed economies; (iii) those analyzing policy coordination between
different territorial administrations within a national space; (iv) those that discuss MMT’s
theoretical foundations in general terms; (v) those not available in English, Portuguese,
or Spanish; and (vi) those we were unable to access, either due to the lack of open access
or the inability to obtain them through other methods, including earlier versions, such as
working papers. A total of 18 articles were excluded in this second phase (Table 2).
Economies 2025,13, 9 4 of 20
Table 1. Inclusion and exclusion criteria used to refine the search.
Inclusion Exclusion
Article Communication to a conference, book
chapter, or book data
English, Spanish, or Portuguese Other languages
Scope of the study: developing or
peripheral countries
Developed countries or discussion of
theoretical foundations
Problems that affect developing countries
due to their characteristics
Other issues: energy transition, degrowth,
or the fight against the pandemic
International dimension National dimension
Open access Not available in open access
Note: own elaboration.
Table 2. Papers excluded and the reason for exclusion.
Paper Reason for
Exclusion Paper Reason for
Exclusion
Olk et al. (2023) i Tymoigne (2020) iii
Medlen and Chen (2023) i Kim (2021) iii
Diesendorf and Hail (2022) i Pantelopoulos and Watts (2021) iii
Prinz and Beck (2022) ii De Aguiar (2022) iv
Lapavitsas and Aguila (2020) ii He and Jia (2020) iv
Armstrong (2022) ii Watts and Juniper (2023) v
Lavoie (2022) ii Dubyanskiy (2023) vi
Cruz and Parejo (2018) ii Rafferty (2023) vii
Tcherneva and Tymoigne (2023) iii Appel (2023) vii
Finally, to conclude this methodology section, the flowchart of the study selection
procedure is described in Figure 2.
2.2. Critical Review of Literature: For and Against MMT
After applying the inclusion and exclusion criteria in two phases, we selected 12 ar-
ticles for review. The studies identified through the PRISMA methodology that address
the topic of modern monetary theory (MMT) and developing economies, periphery, and
sovereignty can be neatly classified into two opposing positions. The results reveal no-
table discrepancies between economists aligned with MMT and those associated with
the balance-of-payments-constrained growth approach, particularly from the structuralist
tradition. These discrepancies center on evaluating the validity of MMT’s postulates, not
only in terms of analysis but also regarding the formulation of macroeconomic policies
applicable to developing economies. Fundamental divergences focus on the extent of
monetary sovereignty within a hierarchical international monetary system, specifically the
feasibility of applying the functional finance approach to fiscal policy, and, ultimately, on
how managing external constraints might limit exchange rate policy options.
A prominent aspect of the divergent views is the discussion on the existence and
relevance of an international currency hierarchy that conditions the liquidity and accept-
ability of domestic currencies in developing nations. This hierarchy is said to arise from
the assumed limitations imposed by peripheral economies’ position in the world system,
especially within the context of globalization in international financial systems. Another
central point of disagreement centers on the extent to which this currency hierarchy dictates
the choice of currency for domestic transactions and international trade, as well as its
role as a savings instrument. This raises the question of whether developing nations are
Economies 2025,13, 9 5 of 20
forced to issue debt in reserve currencies, thereby compromising monetary sovereignty.
Thus, the central debate revolves around whether, although theoretically a state could
choose a floating exchange rate regime compatible with maximum monetary sovereignty, it
may in practice be compelled to manage the exchange rate or even end up in a dollarized
regime, creating a spectrum of monetary sovereignty where nations’ policy options are
no longer entirely free. A secondary perspective seeks to determine whether the currency
hierarchy dictates the development model (mercantilist strategies, import substitution,
etc.) or, conversely, whether the development model compels a particular exchange rate
regime. Ultimately, the debate focuses on how developing countries can manage external
constraints and whether these constraints arise from macroeconomic policy choices or if,
conversely, these choices are conditioned by the currency hierarchy. These considerations
are crucial to evaluating the viability of MMT prescriptions in developing nations.
Economies 2025, 13, x FOR PEER REVIEW 5 of 21
Figure 2. Research framework: flowchart of the study selection procedure. Note: own elaboration.
2.2. Critical Review of Literature: For and Against MMT
After applying the inclusion and exclusion criteria in two phases, we selected 12
articles for review. The studies identified through the PRISMA methodology that address
the topic of modern monetary theory (MMT) and developing economies, periphery, and
sovereignty can be neatly classified into two opposing positions. The results reveal
notable discrepancies between economists aligned with MMT and those associated with
the balance-of-payments-constrained growth approach, particularly from the structuralist
Identification
Studies identified in the databases
(n = 54)
WOS (n = 23)
Scopus (n = 31)
Screening
•Articles excluded for not meeting the inclusion
criteria in the first step: type of document and language
(n = 8)
•Secondary documents included: (n = 2)
WOS (n = 20)
Scopus (n = 28)
Inclusion
Duplicate studies excluded (n = 18)
Excluded studies (n = 18)
(i) Other issues (n = 3) (ii) Developed countries (n = 9)
(iii) Territorial Admin. (n = 2) (iv) Fundamentals (n = 1)
(v) Different language (n = 1) (vi) No open access (n = 2)
Articles for full review (n = 30)
Selection
Total number of studies included (n =
12)
Selected articles for possible reading (n
= 48)
WOS (n = 10)
Scopus (n = 12)
Figure 2. Research framework: flowchart of the study selection procedure. Note: own elaboration.
Economies 2025,13, 9 6 of 20
Aboobaker and Ugurlu (2023) argue that the true challenge for long-term growth in
developing nations is linked more closely to structural transformation than to an overall
insufficiency of aggregate demand. They argue that MMT proponents have inadequately
considered the implications of their proposals for the composition of national output in
terms of consumption and investment, confusing, they contend, “Keynesian” unemploy-
ment with “Marxian” unemployment. Developing economies would require extended
periods of rapid capital accumulation to secure future consumption by increasing their
productive capacity. Since they characterize the job guarantee policy as mere aggregate
demand stimulus, reducing its utility to short-term stabilization problems, they suggest
that this policy is counterproductive for issues related to long-term growth and supply
expansion. Moreover, the analysis of the international currency hierarchy reveals that
developing countries face significant challenges due to the asymmetric structure of the
international monetary system. The position of currencies within this hierarchy affects
their capacity to perform key international functions, influencing vulnerability to capital
flight and the difficulty of incurring national currency debt over the short and long terms.
Technological dependence and the need to import capital-intensive intermediate goods
contribute to persistent trade deficits in developing countries. The structural nature of
balance of payments deficits and fiscal balance issues are interrelated. Even when operating
under a floating exchange rate regime with a convertible currency, fiscal policy conduct in
open economies must consider balance of payments constraints. Thus, the “Original Sin”
phenomenon, primarily associated with developing nations, is explained by the structural
tendency to incur trade deficits and rely on foreign currency to meet payment obligations.
Additionally, foreign investors’ reluctance to hold currencies issued by developing coun-
tries limits these countries’ capacity to borrow in their national currency. The currency
hierarchy also necessitates higher returns on assets denominated in peripheral currencies
to compensate for their lower liquidity. Ultimately, developing countries must design their
fiscal and monetary policies under the threat of capital flight, resulting in policy choices
that are far from autonomous.
Belluzzo et al. (2021) address the question of state sovereignty in a globalized en-
vironment where financial markets exert substantial influence over national economic
policies. They argue that MMT may oversimplify the complex relationships between the
state, the market, and society. The discussion on MMT’s application in developing countries
is framed within the broader context of external constraints, which include limitations
imposed on a country’s economic policy due to external factors such as the exchange rate,
international interest rates, and the availability of external financing. These challenges
include a careful study of the interaction between monetary and exchange rate policy, as
well as dependence on external capital flows and global market conditions. On the one
hand, a country’s ability to finance its public spending by issuing currency may be limited
by considerations related to exchange rate stability and inflation, especially for vulnerable
currencies or under inflationary pressures. On the other hand, a lack of confidence in the
national currency and the potential for capital flight could hinder the application of MMT
in these countries, especially if expansive fiscal policies are perceived as inflationary or
irresponsible by foreign investors.
The text by Bonizzi et al. (2019) criticizes MMT’s lack of acknowledgment of external
constraints and advocates for a broader conceptualization of development strategy, consid-
ering the impact of a hierarchical international monetary and financial system, within which
developing countries occupy a subordinate position. They highlight the need to move
beyond MMT’s simplified view of unlimited acceptance of the national currency and the
presentation of foreign currency borrowing as a choice rather than a structural constraint.
The discussion extends to policy recommendations for developing countries, questioning
Economies 2025,13, 9 7 of 20
the minimization of binding external constraints. They also argue that MMT’s view of
foreign demand for financial assets does not align with the reality of international trade
systems. The central question ultimately becomes whether MMT’s proposals for increasing
monetary sovereignty are sufficient to provide policy autonomy to the governments of
developing countries and overcome externally imposed constraints. This question leads to
how developing countries might address the need for foreign currency to conduct imports
of technology and capital goods during the industrial transformation process without
resorting to foreign currency debt. The authors conclude that, in conditions of limited
autonomy and the measures that can be taken to increase the degree of available policy
autonomy, the literature on MMT does not provide a substantial contribution.
Prates (2020) explores the relationship between monetary sovereignty, currency hier-
archy, and policy space in emerging market economies. It is argued that the policy space
in these economies is determined by the degree of monetary sovereignty and the position
of the national currency within the international currency hierarchy. The author empha-
sizes the central bank’s role as the lender of last resort and regulator of the monetary and
financial system to maintain the convention of currency acceptability, a function considered
insufficiently acknowledged in the literature on MMT. Regarding exchange rate regimes,
it is argued that floating rates do not provide greater policy space in emerging markets,
introducing the concept of the “fear of floating”. The author also critiques the misinter-
pretation of current and capital accounts in determining whether a country is lending or
borrowing, emphasizing the importance of considering gross capital flows to understand a
country’s financial integration into the international monetary and financial systems. In
terms of monetary sovereignty and policy space, the analysis distinguishes between central
countries and those issuing peripheral currencies from emerging economies. Six different
scenarios are identified in relation to the degree of monetary sovereignty and policy space,
highlighting the vulnerability of emerging markets to the decisions of global portfolio
investors. A more detailed analysis is needed to determine the specific policy space of each
emerging market economy, considering factors such as the relative position of its currency
in the hierarchy, external constraints, and the “macroeconomic regime”. This last factor
encompasses not only the exchange rate regime but also the degree of financial openness,
which affects the effectiveness of exchange rate policy and the capacity of the peripheral
economy to manage international repercussions.
Razmi (2023) examines MMT principles in the context of an open economy and
concludes that it does not offer a suitable framework for analysis or policy design. The
Tobin–Markowitz portfolio balance approach is used in an open economy with a flexible
exchange rate to analyze the interactions between goods and asset markets, highlighting
the importance of portfolio considerations and expectations in a model that assumes fis-
cal/monetary authorities’ ability to accommodate any level of spending while keeping
the short-term interest rate constant. The author’s findings reveal that MMT faces an
instrument insufficiency problem, as an authority aiming to manage both full employment
and low inflation would need additional tools beyond fiscal policy. The introduction of
expectations and foreign debt brings additional complexities. The paper discusses how
MMT affects the goods market framework, which is described as Keynesian, with a flexible
exchange rate and cost-driven, distribution–conflict inflation. The analysis also addresses
the relationship between increased government spending and currency depreciation, un-
derscoring existing differences with conventional models like that of Mundell–Fleming due
to MMT’s fixed interest rate approach. The author criticizes MMT advocates for neglecting
the effects of changes in distribution on prices, resulting in a lack of explicit linkage be-
tween margins, wages, and prices. It is argued that exchange rate expectations may create
dynamic instability in the system, reintroducing inflation control as an economic policy
Economies 2025,13, 9 8 of 20
objective and partial autonomy for the central bank. Additionally, the discussion covers
how foreign debt may contribute to system instability, concluding that the instrument
assignment prescribed by MMT may leave a country vulnerable to undesired outcomes,
even if it issues debt in its own currency.
Vernengo and Pérez Caldentey (2020) examine the limits of fiscal policy in countries
that rely on borrowing in foreign currency. Topics such as exchange rate depreciation,
capital controls, inflation and hyperinflation, and national currency debt in developing
countries are analyzed. The authors argue that the literature on MMT overemphasizes
exchange rate regime choice and overlooks the role of capital controls and the balance of
payments constraint. The importance of Latin American structuralist ideas for understand-
ing the limits of fiscal policy in the periphery is highlighted. It is argued that what limits
policy space is not the choice between a fixed or flexible exchange rate but the need to
obtain foreign currency to import essential goods and pay off foreign currency debt. A
trade deficit must be balanced with positive capital flows and/or changes in international
reserves, but a growing current account deficit may be unsustainable in the long term
for developing countries. The authors discuss how currency depreciation can increase
debt service costs and cause deleveraging in the corporate sector, potentially leading to
increased demand for foreign currency and devaluation pressures. They argue that external
constrains are a concern even if the national currency is not convertible, due to the need to
import essential goods. High interest rates may be necessary to attract capital flows and
maintain political stability, which may limit the effectiveness of expansionary fiscal policy
in developing countries. In summary, the text highlights the complexity of fiscal policy
in developing countries, emphasizing the importance of considering external constraints,
exchange rate regimes, capital controls, and the limits as well as possibilities of fiscal policy
in these contexts.
Bykov et al. (2021) focus on analyzing the economic growth drivers in China between
2010 and 2017 by using the input–output methodology. Perspectives on Chinese growth
are explored, considering both internal and external factors, such as exports and foreign
direct investment (FDI). The findings indicate that domestic demand was a significant
driver of Chinese economic growth during this period, countering the notion that exports
and FDI are the main drivers of growth. The study highlighted that industrial policy and
import substitution have also contributed to internal growth, enabling the modernization
of China’s industrial sector and meeting domestic demand with locally produced goods.
Additionally, a correlation is noted between the money supply, GDP, and the contribution
of domestic demand to GDP, suggesting that monetary policy has been used to stimulate
domestic demand. Contrary to traditional views, it is argued that stimulating domestic
demand in China does not lead to a trade balance deterioration due to factors such as
monetary as well as financial sovereignty and industrial competitiveness. The Chinese
experience is suggested as offering lessons for stimulating growth in other countries, though
it is noted that factors like specialization in raw materials may limit the direct application
of these lessons in countries like Russia and Belarus, indicating the need to modernize both
the financial system and industry to fully leverage China’s lessons.
Gomes and Martins (2023) examine the degree of monetary sovereignty in Brazil
and its capacity to determine fiscal policy, focusing on an empirical evaluation of the
conditions surrounding its external and domestic debt. The central question posed is
whether Brazil, as a peripheral nation, can truly be considered monetarily sovereign. The
authors emphasize that, since adopting the real, Brazil has met the basic characteristics
of a country with a sovereign currency, though its dependence on foreign currency has
fluctuated over time, impacting economic policy autonomy. They identify a decline in both
gross and net external debt, suggesting reduced foreign currency dependency. Brazil has
Economies 2025,13, 9 9 of 20
also accumulated significant international reserves, providing flexibility in its economic
policy, especially regarding the exchange rate. Furthermore, the decrease in the proportion
of public debt linked to the exchange rate indicates a relaxation of external constraints
and an increase in Brazil’s fiscal autonomy. Based on this analysis, the potential economic
barriers resulting from external constraints, local debt renewal challenges, and interest rate
limitations have not been empirically evident in Brazil. In recent years, Brazilian authorities
have exercised some autonomy in defining economic policy, albeit constrained by the
institutional framework governing monetary and fiscal policy, and the relationship between
the Central Bank of Brazil and the National Treasury. Therefore, despite institutional
limitations, it is inferred that Brazil possesses the political capacity to establish a fiscal
framework aimed at full employment and reducing inequality. Fiscal policy limitations are
primarily self-imposed, stemming from an economic perspective centered on austerity.
Kotilainen (2022) discusses the lack of focus in the literature on international politi-
cal economy (IPE) on democratic legitimacy in monetary governance. A discrepancy is
highlighted between modern monetary theory (MMT), which emphasizes the role of the
nation state, and calls for supranational democratic economic governance. The debate
arises between proponents of national economic autonomy and advocates for reorganizing
economic governance toward a less state-centered structure. Kotilainen argues in favor of a
supranational exercise of monetary sovereignty, noting that states may struggle to maxi-
mize the benefits of their currency monopoly due to limited resources. The text explores the
relationship between cosmopolitanism and monetary sovereignty, emphasizing the need
for institutional reforms to address global challenges with predominantly national means of
action. It is suggested that globalization has eroded both the effectiveness of national policy
and the legitimacy of state sovereignty, prompting demands for supranational governance
structures. The idea of a cosmopolitan democracy is proposed, recognizing the significance
of local political entities alongside the need for broader institutions to address global issues.
The text suggests that while the national exercising of monetary sovereignty can align with
economic cosmopolitanism, a cosmopolitan condition is required for its legitimacy. This
condition means that national monetary policies should neither interfere with the goals
and strategies of other states nor hinder their capacity to pursue cosmopolitan economic
policies. In the long term, it is suggested that developing a world currency, accompanied
by a global central bank and a federal fiscal union, could better align macroeconomic
policies with cosmopolitan objectives. MMT is seen as implicitly supportive of fiscal unions
and potentially providing useful guidelines for designing supranational macroeconomic
governance institutions. In sum, a more supranational approach to monetary sovereignty
is advocated, though significant political challenges are acknowledged. The importance of
synthesizing ideas from both perspectives is emphasized to enrich economic theory and
policy and to design more suitable institutions for global governance.
Kregel’s essay (2020) examines the interaction between monetary sovereignty and
external demand for the national currency, underscoring how the latter can significantly
restrict the former. It is emphasized that any country seeking to meet its external debt
obligations must provide its currency abroad in adequate quantities to facilitate those pay-
ments. Consequently, to maintain a global balance of earnings, such countries must sustain
national benefits even amid international trade deficits. Failure to do so may jeopardize
their international position, raising doubts about their ability to maintain genuine fiscal
autonomy. Being an international reserve currency, therefore, implies a partial surrendering
of sovereignty, as a global supply of the currency must be ensured, irrespective of domestic
policy needs.
Nersisyan and Wray (2016) point out that, despite MMT’s emphasis on the role of
the state in the monetary system, it does not imply that states are omnipotent or free from
Economies 2025,13, 9 10 of 20
constraints. State capacity varies significantly across different temporal and geographic
contexts. Even in modern, developed, and prosperous capitalist economies, states face
internal political limitations, resource constraints, external pressures, and self-imposed
restrictions. The latter include commitments to fixed exchange rates, such as the promise to
convert national currency on demand into foreign currencies or, historically, into gold, as
well as internal operating procedures.
Serrano and Pimentel’s (2017) text provides a detailed analysis of the relationship
between economic policies, external conditions, and public debt dynamics in peripheral
countries like Brazil. They highlight the influence of factors such as international interest
rates, U.S. monetary policy, China’s economic growth, and external debt management
in local currency on the improvement of Brazil’s macroeconomic conditions during the
early 21st century. U.S. monetary policy, along with the improvement in relative prices of
exported commodities and China’s economic growth, has contributed to better external
conditions in peripheral regions. This has enabled greater capital flow mobility toward
peripheral countries and reduced the likelihood of balance of payments crises. The impor-
tance of Brazil’s external solvency and liquidity is also underscored, as well as the fact that
much of the accumulated external debt is denominated in local currency. This has reduced
the country’s vulnerability to exchange rate fluctuations and allowed the Central Bank to
reduce basic interest rates without an excessive risk of currency depreciation. Under such
conditions, the authors discuss the drastic shift in Brazilian economic policy from 2015,
with recessionary and income-concentrating measures that led to a deep recession. It is
argued that these measures were adopted in response to perceived pressure from credit
rating agencies, although the logic behind this justification is questioned, given that the
agencies do not have a direct impact on the long-term interest rates of local currency public
debt. It is emphasized that the notion of “running out of money” is used as a justification
for austerity policies that aim to reduce the state’s size, though this approach may under-
mine efforts toward a more inclusive and sustainable national development project. The
authors conclude that, despite external pressures and economic policy decisions, coun-
tries with sovereign currency, like Brazil, have room to manage public debt and monetary
policies independently.
In summary, the analysis of various studies reveals a debate regarding the applicability
of MMT in developing economies, with conflicting views on its viability and effectiveness in
managing economic policies. Discrepancies regarding monetary sovereignty and external
constraints, as well as the influence of currency hierarchy on peripheral countries’ capacity
to implement autonomous fiscal and monetary policies, are highlighted. Additionally,
the importance of considering structural limitations within the international monetary
system and the need for policies promoting inclusive and sustainable development is
underscored, in contrast to austerity measures driven by external pressures. Despite
tensions and challenges, it is concluded that countries with sovereign currency still have
leeway to independently manage public debt and monetary policies, though this leeway
may be conditioned by various external and internal factors.
3. Inferences and Policy Suggestions Based on Literature Analysis: The
External Constraint Was Always There
MMT conceptualizes currency as a state monopoly. According to this framework,
tax collection in the state-defined unit of account is not necessary for financing public
expenditure; rather, it compels citizens to accept the monopolist’s currency. The only way
to acquire the currency needed to pay taxes is by supplying goods and services to the
state or by exchanging them with others who have done so (Wray,1998a;Tcherneva &
Cruz-Hidalgo,2020;Garzón et al.,2023).
Economies 2025,13, 9 11 of 20
The notion of monetary sovereignty is central among MMT theorists (Kelton,2011;
Medina Miltimore,2016;Mitchell,2016). A sovereign state does not need to operate with
balanced budgets or enforce austerity policies that compromise full employment. There is
no risk of involuntary insolvency, and thus this should not influence policy decisions. Such
a state is not beholden to bond vigilantes, independent central bankers, savers, investors,
or private banks. Nersisyan and Wray clarify that MMT
“does not imply that states are omnipotent or free from constraints. State capacity varies
considerably across time and space. Even if we limit our discussion to wealthy, developed
modern capitalist economies, states face internal political constraints, resource limitations,
external constraints, and self-imposed restrictions. These self-imposed restrictions range
from fixed exchange rate commitments (promises to convert their currency on demand
into foreign currencies or, in the past, into gold) to internal operational procedures”.
(Nersisyan & Wray,2016, p. 1301)
Monetary sovereignty provides fiscal flexibility to public finances and shifts gov-
ernmental policy priorities, moving away from the “sound finance” paradigm toward
the functional finance approach (Lerner,1943;Nell & Forstater,2003;Armstrong,2019).
Moreover, in line with post-Keynesian thought, the interest rate is determined exogenously
by the central bank and understood as a distributive variable (Rochon & Setterfield,2007;
Tymoigne,2020). MMT proponents specifically assert that the natural interest rate is zero
(Forstater & Mosler,2005). Full employment, price stability, and financial stability should
thus become central to policy design, with the government addressing pressing issues in
alignment with the public will (Mitchell & Muysken,2008;Tcherneva,2020;Mario,2020).
The critiques of MMT reviewed in this chapter do not focus so much on the na-
ture of money or the functional operation of fiscal and monetary policies in sovereign
economies—concepts
that appear generally understood. Instead, they concentrate on
challenges posed by the application of functional finance, particularly job guarantee pro-
grams and low-interest rates in developing or peripheral economies, which must contend
with the need to maintain favorable exchange rates. Limitations to monetary sovereignty
arise from the existence of an international currency hierarchy, which is an extension of
power relations that structure unequal and dependent economic relationships between
countries (Aboobaker & Ugurlu,2023;Belluzzo et al.,2021;Bonizzi et al.,2019;Prates,
2020;Razmi,2023;Vernengo & Pérez Caldentey,2020). Other scholars, such as Kregel
(2020), Bykov et al. (2021), and Gomes and Martins (2023), propose less extreme positions,
consistent with a perspective in which there is a spectrum of monetary sovereignty and
a potential evolution toward greater degrees of sovereignty, as shown in the analysis by
Serrano and Pimentel (2017).
The international monetary system is characterized by a hierarchical and asymmetrical
structure centered around a dominant currency, the U.S. dollar, establishing a liquidity-
based order of preference that generates interdependence among nations. As Nair (2023)
notes, the international liquidity of a currency stems from institutional, structural, and
cyclical factors. Shifts in global liquidity preferences can impose recessionary pressures
on developing economies, regardless of their national actions. This reflects the constraints
imposed by the subordinate position of developing economies within an international
monetary and financial system structured around unequal and interdependent power
relationships. Currency demand remains limited except for a select few (Aboobaker &
Ugurlu,2023;Bonizzi et al.,2019). As Nair (2023, p. 14) states, the periphery, in order to
“acquire the means of international payment, must compromise its portfolio through the
creation of costly liabilities or adjust its economic production structure to obtain the means
of payment”.
Economies 2025,13, 9 12 of 20
In contrast, MMT proponents argue that it is unnecessary to sacrifice real internal
resources for this purpose. Beyond their challenging view that imports represent a benefit
and exports a cost (Mosler,1995), proponents assert that if foreign financial assets are
denominated in the national currency, which operates under a floating exchange rate, the
balance of payments constraint is non-existent, even with large current account deficits
(Mitchell & Fazi,2017, pp. 202–214).
However, critics contend that it is insufficient to merely appreciate the benefits of
a trade deficit, such as higher current consumption or capital accumulation; the impli-
cations of cross-border financial positions cannot be ignored (Bonizzi et al.,2019). A
currency ranked low within the international hierarchy faces significant external con-
straints. The disciplining power of national and international financial markets is much
greater than the unilateral decision-making capacity of most states regarding public debt
management and economic policy (Belluzzo et al.,2021). The problem of importing cap-
ital and intermediate goods to sustain economic functioning and growth is exacerbated
(Vernengo & Pérez Caldentey,2020). Practically, these are reasons why fiscal austerity
is not always a self-imposed choice in peripheral countries; it is not an internal policy
option. They are simply compelled to act by the discipline of international financial mar-
kets
(Aboobaker & Ugurlu,2023)
. While there is room for expansionary fiscal policy if the
balance of payments constraint is not reached, such policy must aim to expand the external
constraints. Here, a contradiction arises, as Mario (2020, p. 107) points out, discussing
this same position regarding the “reformulation” of functional finance from a structuralist
perspective for developing countries: “How is it possible to use the fiscal deficit to displace
the external constraint if, insofar as it is not displaced, the government must achieve a
fiscal balance?”.
Regarding the option of incurring debt in domestic currency within a flexible ex-
change rate system, this is not considered viable. Capital outflows and pressures on the
current account will likely devalue the national currency, leading to imbalances in the
public and private sectors’ financial positions, especially when these sectors rely on imports
to function. These issues are further compounded by the reluctance of domestic private
agents to borrow or hold domestic currency assets due to their typically volatile value. In a
formulation recalling loanable funds theory, Aboobaker and Ugurlu (2023) argue that these
factors limit the financial system’s capacity to provide the long-term credit needed for in-
dustrialization, as loans in domestic currency frequently become foreign currency deposits,
creating destabilizing currency mismatches in bank balances. This view is also supported
by
Bonizzi et al. (2019)
,Prates (2020), and Vernengo and Pérez Caldentey (2020). As the
latter authors note, even when the state avoids incurring debt in foreign currency, private-
sector debts may still become government liabilities (
Vernengo & Pérez Caldentey,2020
),
potentially leading to sovereign defaults through this channel.
MMT proponents do not deny the existence of external constraints, defined as a limit
on imports equivalent to the sum of exports plus net financing provided by the rest of
the world. Even if we accept the notion that emerging economies’ currency markets are
shallow, there will always be some demand for the currency for tax payments, and there
will always be an exchange rate that makes such transactions feasible. What MMT provides
is a clearer understanding of the implications of this constraint. From a sectoral balance
perspective, the “implication in terms of fiscal balance is that in steady-state conditions,
the deficit tends to be smaller than it otherwise would have been” (Tymoigne,2020, p. 68).
MMT focuses on the “real resource limitations of nation-states, particularly those that are
territorially small and/or resource-poor”, which may become excessively reliant on foreign
resources and, consequently, on foreign currencies (Kotilainen,2022, p. 96).
Economies 2025,13, 9 13 of 20
As Mario (2020) explains, public debt in foreign currency constitutes what could
be termed a “hard” external constraint. While a country can reduce imports, it is more
challenging to reduce the amount of foreign currency owed. Such indebtedness is not a
structural constraint but rather the result of political choices rooted in particular develop-
ment models. This “hard” external constraint, especially when there is high mobility of
short-term capital flows, eliminates or creates asymmetries in the degrees of freedom that
constrain interest rate and exchange rate policies (Serrano & Pimentel,2017). High real
interest rates are necessary to attract capital flows and counter poor export performance.
High interest rates not only impose a relative burden of interest payments but also create
political conditions for enforcing austerity policies, as Vernengo and Pérez Caldentey (2020)
note regarding the Brazilian experience. Furthermore, this situation presents a social equity
problem as it primarily benefits financial rentiers. In addition to the difficulty of consistently
finding an interest rate high enough to curb capital outflows and prevent devaluation,
Mario (2020) observes that critics place greater emphasis on the substitution effects of
interest rates, ignoring income effects.
Exchange rate flexibility allows for substituting internal price flexibility to achieve
balance in the trade account (Kregel,2020), maximizing the fiscal space available for the
government to spend as needed and achieve full employment (Mario,2020,2021). Critics,
however, question whether a floating exchange rate can indeed ensure a rebalancing of
the trade account (Vernengo & Pérez Caldentey,2020). The real exchange rate devaluation
required to boost exports may be technically unfeasible (due to the low price elasticity of ex-
ports) or politically impossible if it requires moderate wage growth, generating inflationary
pressures through pass-through effects
(Bonizzi et al.,2019;Aboobaker & Ugurlu,2023)
.
For these authors, the necessity of managing the exchange rate is justified not only to
prevent balance of payments crises but also to avoid the pass-through effect on prices
caused by depreciations. These authors argue that “the question is not between fixed
and floating exchange rate regimes, but rather whether the external constraint is bind-
ing” (
Vernengo & Pérez Caldentey,2020
). The choice of exchange rate regime could either
widen or narrow the policy space depending on specific circumstances; however, they reject
the notion that under a floating exchange rate regime, the interest rate target can be set in
alignment with domestic policy goals, thus suggesting a compromise on full employment.
As Bonizzi et al. (2019, p. 53) assert, “the government could find itself in a position where it
must choose between continuing to issue domestic currency to purchase necessary imports
or avoiding a collapse in the exchange rate”.
There appears to be some misunderstanding of the MMT position. While a depre-
ciation resulting from a trade deficit may not fully eliminate that deficit, it still increases
net real benefits, provided the total unit volume of imports does not decline significantly
(
Wray,2006
;Mosler,2000). What MMT advocates emphasize is the possibility of max-
imizing the fiscal space offered by a floating currency regime and the sustainability of
the external balance when there is no public debt denominated in foreign currency. The
external constraints are indeed binding, but fiscal space remains unconstrained within the
control scope of the currency-issuing authority.
Bonizzi et al. (2019) argue that the causality between monetary sovereignty and
exchange rate flexibility is inverse: developed countries with deep financial markets and
well-developed monetary and financial institutions, whose currency is widely used and
traded, can safely adopt floating exchange rate regimes; other nations have no choice
but to operate with some form of managed exchange rate. It cannot be proven that a
flexible exchange rate facilitates macroeconomic stability, though neither can the opposite
be definitively proven.
Economies 2025,13, 9 14 of 20
To keep foreign currency debt under control, MMT critics argue that it is necessary to
focus on exchange rate stabilization, which in turn requires limited spending to maintain a
credible reserve of foreign currency to mitigate sovereign risk (Vernengo & Pérez Caldentey,
2020;Serrano & Pimentel,2017;Gomes & Martins,2023). Since “their currencies face
limited global demand, developing economies must work hard to acquire sufficient foreign
exchange reserves to settle their payments and external debts” (Kotilainen,2022, p. 96). The
social utility of investing in reserves is questionable, as it implies tolerating unemployment
to control wages and imports (Mario,2020). Additionally, it imposes an added cost on
the sovereign, who must allocate part of its purchasing power to acquire foreign-currency-
denominated debt, incurring a negative carrying cost (Nair,2023, p. 8). Indeed, currency
purchases reduce rather than expand fiscal space.
This exchange rate strategy forces nations to adopt an asymmetric approach to ex-
change rate policy, as central banks can easily contain real exchange rate appreciations
but can only prevent devaluation up to a threshold determined by available reserves
(Aboobaker & Ugurlu,2023). The irony, perhaps lost on these authors, is that managed
exchange rate policies are the primary cause of the dollar’s “exorbitant privilege”, allowing
the United States to sustain large trade deficits. In other words, this policy demands the
export of real resources, often of low added value, from the periphery to the United States
and other central economies issuing reserve currencies (Tymoigne,2020, p. 61).
MMT has supported the use of a targeted demand approach rather than the general
spending approach favored by many Keynesians (Forstater,2003;Kaboub,2008;Forstater,
2013;Tcherneva,2020;Nersisyan & Wray,2021;Sylla,2023). Surprisingly, Razmi (2023)
criticizes MMT for an insufficiency of instruments, arguing that an authority targeting both
full employment and low inflation would need another instrument beyond fiscal policy. If
fiscal policy is directed toward employment, inflation will follow the path of labor costs.
Razmi’s argument, however, overlooks an essential aspect frequently ignored by MMT crit-
ics: the employment guarantee or job guarantee (JG) discussed earlier. If the goal of fiscal
policy is to avoid involuntary unemployment, the most effective way to achieve this is by
directly employing unemployed workers. A guaranteed employment program has at least
two advantages over discretionary fiscal policy. First, once implemented, the program func-
tions as an automatic stabilizer. When the private sector lays off workers, the government
hires them. During recovery, the private sector rehires these workers at higher wages and
conditions than the JG offers. Thus, there is no need to wait for stimulus bills to go through
lengthy political processes to stabilize the economy. The government simply provides
funding to hire all willing workers (Mitchell,1998;
Mosler,1997
;Wray,1998b). According
to the principles of functional finance, the resulting size and balance of budget accounts are
not significant. The program wage effectively becomes the minimum wage for the economy,
which is stable in terms of ELR/basic labor, establishing the relative prices that adjust based
on various market elements (Cruz-Hidalgo et al.,2020;Cruz-Hidalgo & Mario,2021). Ad-
ditionally, the JG is not necessarily an expansionary policy; it can be implemented alongside
spending cuts or tax increases, promoting a resource allocation shift that could even lead
to self-sustaining payment through changes in the employment composition between
JG and non-JG jobs (Nersisyan & Wray,2021;
Cruz-Hidalgo & Mario,2021
). Unless it is
believed that dollars are needed to create jobs and real resources cannot be mobilized
using domestic currency, such a limit should not prevent full employment. Regardless of
the existing production means, there will always be a feasible level of full employment,
utilizing available techniques, even if they are outdated. It is preferable for jobs to be
constructive rather than defensive—dedicated to enhancing and benefiting the community
rather than merely alleviating the hardships of maintaining a significant portion of the
population unemployed, with all its associated challenges (Tcherneva,2019).
Economies 2025,13, 9 15 of 20
A JG cannot be inflationary, as it operates according to the “buffer stock” principle.
As Mosler (1995,1997) explains, the price level is necessarily a function of the prices
paid by the government, which acts as a monopoly issuer when it spends. Over time,
the nominal wage for unskilled labor in the JG becomes the most stable price in the
economy, effectively anchoring other prices to the domestic currency. Although it could be
argued that a full-employment policy might lead to currency depreciation, this would not
necessarily deteriorate the real terms of trade via currency devaluation (
Mosler,1995,1997
).
Depreciation in the exchange rate would alter relative prices, but even if this raises the price
level and thus lowers the real wage, JG workers would still earn an infinitely higher wage
than zero. Certainly, floating exchange rates can produce distributive effects; however, what
might be considered the principal distributive issue—unemployment—has been eliminated
(Cruz-Hidalgo & Mario, 2021, p. 1008).
Authors like Aboobaker and Ugurlu (2023) critique modern monetary theory (MMT)
proponents for neglecting the impact of eliminating less competitive firms in economies
with high unemployment and informal labor markets, which they see as vital to controlling
absolute poverty rates. Advocating for the maintenance of low-productivity sectors to
lift an economy out of underdevelopment and improve the real exchange rate seems
extravagant. Additionally, we are struck by Belluzzo et al.’s (2021) concern that eliminating
unemployment could increase union power and affect private-sector cooperation. This
is precisely about dismantling the “reserve army” of labor and socializing investment,
effectively ending the private sector’s monopoly that uses both variables to achieve its
political ends.
Another significant point is that current account surpluses, by definition, cannot be
simultaneously achieved by all nations and impose deflationary biases that limit global
economic growth (Wray,2012;Mario,2020;Kotilainen,2022). Maintaining such surpluses
further creates a distributive conflict, as all households are net importers while manufactur-
ers are net exporters; the devalued currency of net-exporting economies forces households
to subsidize the manufacturing sector to remain competitive. This requires reserve accumu-
lation, which paradoxically cannot be allocated to capital goods acquisition for accelerating
technological progress. Trade merely facilitates a race to the bottom, directing business and
productive flows to areas with higher unemployment and lower labor costs. Consequently,
to attract foreign companies, a nation must sustain high unemployment levels and offer
high profit potential (Mosler,1995,1997).
In general, MMT authors advocate for import substitution and a rethinking of de-
velopment strategies toward the full mobilization of resources and domestic investment,
either through public banking instruments or domestic investment markets (Mario,2021;
Nersisyan & Wray,2023;Sylla,2023). It is well known that public investment in infras-
tructure increases productivity and reduces private-sector costs, which should result in an
improved real exchange rate. When complemented by JG, this strategy is more inclusive
and contributes to labor productivity improvement.
The growth strategy based on import substitution and the full mobilization of eco-
nomic resources receives scant attention from critics, who also avoid addressing the dis-
tributive issues stemming from neo-mercantilist or debt-based growth models. Fixed or
managed exchange rate strategies depend on maintaining unemployment to protect the
real income of those employed and provide access to a plethora of attractive, low-cost im-
ported goods (Mario,2021). Fiscal responsibility merely postpones inevitable consequences:
trade and fiscal deficits during a currency crisis. Peripheral countries remain trapped
in a repetitive cycle of dollar accumulation, seeking to boost their economies through
various strategies, such as infrastructure investments or international returns. However, as
Economies 2025,13, 9 16 of 20
dependence on foreign currency reserves intensifies, it becomes more challenging to escape
this cycle.
MMT theorists do not ignore issues of currency hierarchy and external constraints;
instead, they shift attention from current account constraints to real resource constraints.
They also apply a Minskyan perspective and sectoral balance approach to address debt
problems denominated in currencies not issued by the national monopolist. This does
not imply ignoring a global system with a core of capital-intensive economies capturing
more value and a periphery of capital-light, raw-material economies with cheap labor.
Certainly, functional finance is constrained by external limitations if the strategy merely
involves aggregate demand stimulus, but the JG, as discussed, is far more than such an
approach as suggested by authors like Aboobaker and Ugurlu (2023) and Razmi (2023).
Additionally, the JG addresses distributive issues. Although it cannot be guaranteed to
magically solve a poor country’s problems, it is difficult to argue that a full-employment
policy impoverishes a country by maximizing the use of its domestic resources, altering
the composition between creative and defensive jobs. Ultimately, the JG explores more
inclusive ways to lift an economy from underdevelopment by mitigating financial and
macroeconomic instability. It does not claim to be a panacea for underdevelopment but
rather advocates an autonomous approach to development, which might lead to slower
growth in periods when currency accumulation accelerates while also smoothing the effects
of the opposite situation, fostering more stable development and certainly affirming the
monetary sovereignty of developing states.
Finally, at the global action level, MMT proponents have introduced several pro-
posals aligned with Kotilainen’s (2022) thought-provoking “cosmopolitan” approach.
Lahiri and Darity (2024
), while acknowledging that monetary sovereignty might avoid
the financial constraints that hinder the pursuit of development strategies, consider that it
does not address the problem of insufficient capital accumulation. Fostering domestic de-
mand could therefore lead to structural dependence on imports and dependence on foreign
borrowing and destabilizing capital flows. The consideration of technological disadvan-
tages and structural subordination leads the authors to analyze the impact of Global North
reparations payments to the Global South under the form of transfers, labor-augmenting
supply-side investments, infrastructure capacity building, or technology transfers. In this
vein, Mitchell and Fazi (2017) argue that, given the planet’s unequal resource distribu-
tion, the international community has a responsibility to alleviate constraints imposed
by trade imbalances on disadvantaged nations. They propose the elimination of current
multilateral institutions, such as the World Bank and the International Monetary Fund,
whose fiscal austerity policies, export-driven growth models, and rising levels of foreign
currency debt perpetuate economic disparities. Instead, they advocate creating new entities
to promote public infrastructure, education, healthcare, and provide liquidity to maintain
macroeconomic stability and prevent currency devaluation in countries facing balance of
payments challenges. While these reparations and enhanced international aid programs
would indeed shift external constraints in favor of less developed economies, and should be
evaluated by international development agencies, we must also bear in mind that political
realities hamper their applicability as a policy tool available to developing nations.
Sardoni and Wray (2007), on the other hand, examine Davidson’s (1992) proposal to es-
tablish an International Monetary Compensation Unit (IMCU), inspired by Keynes’s Bancor
plan. This IMCU would be used exclusively by central banks in an international clearing
system, with penalties for countries with persistent outflows or reserve accumulation in the
IMCU; however, they question the feasibility of this plan, arguing that it overlooks the use
of currencies in capital account transactions and doubts the effectiveness of exchange rate
adjustments without capital controls. Indeed, until fairer global governance is achieved to
Economies 2025,13, 9 17 of 20
mitigate the current global disorder, the state level may be the most appropriate or efficient
to optimize MMT’s applicability. This framework continues to offer a realistic model for
protecting domestic economies from macroeconomic instability and addressing distributive
conflicts in a more inclusive way than development strategies proposed by structuralist
authors and other critics, which are entirely beyond the reach of developing countries,
reinforcing their dependency.
4. Conclusions: Different Resources, Diverse Full-Employment Possibilities
The paper thoroughly examines the debate surrounding the applicability of MMT
in developing economies, highlighting key discrepancies and points of contention across
different academic perspectives. This study is grounded in a systematic review employing
the PRISMA method to analyze academic literature on MMT and its relevance to peripheral
or developing economies.
The review findings reveal a marked contrast between the views of economists who
advocate for MMT and those aligned with more “traditional” or critical approaches, such
as structuralism. Significant divergences emerge in the assessment of MMT’s founda-
tional claims, particularly regarding the feasibility of achieving monetary sovereignty and
implementing macroeconomic policies applicable to developing economies.
From opposing perspectives, questions arise about the ability of developing countries
to implement autonomous fiscal and monetary policies, given the constraints imposed by
these countries’ roles in the international division of labor and the international currency
hierarchy. Skepticism surrounds whether MMT proposals can sufficiently deliver policy
autonomy or whether these remain limited by external factors beyond the control of
these economies.
The MMT perspective acknowledges the importance of external constraints but di-
verges from critics in its interpretation. Expanding external constraints is indeed necessary,
yet exploring alternative strategies is warranted—rather than persistently seeking foreign
currency accumulation and encountering the same obstacles. The application of a JG policy,
coupled with flexible exchange rates and low interest rates, might benefit from comple-
mentary policies, such as capital controls and focused import substitution policies. This
path, though gradual and possibly requiring the sacrifice of boom periods, is anticipated to
promote greater macroeconomic stability, reducing external dependency in the medium to
long term and enabling the structural transformation of peripheral economies through the
full employment of domestic resources.
This trajectory holds promise for expanding external constraints and strengthening
the exercising of monetary sovereignty, though it is not without challenges. Distributional
effects resulting from current policy, along with the resistance from private sectors seeking
to retain monopolies over investment and the labor market, present obstacles that demand
political support—not only challenging to establish but also difficult to sustain over the
necessary duration to adapt the JG to evolving domestic conditions, expectations, and
unforeseen events. Without such endurance, economies risk reverting to a growth strategy
based on sacrificing segments of the population in exchange for limited foreign currency
accumulation, which historically has failed to benefit the most vulnerable links in the chain.
In conclusion, this analysis provides a comprehensive view of the tensions and chal-
lenges related to applying MMT in developing economies, without disregarding the con-
straints that critics argue MMT overlooks. While the external constraint operates, it does
not invalidate MMT’s policy recommendations; however, these policies must account for
domestic conditions to take root effectively, establishing a solid foundation within the real
resource and external constraint boundaries, thus enabling the sustainable expansion of the
external constraint. This approach may not be as rapid in certain phases but is envisioned as
Economies 2025,13, 9 18 of 20
more autonomous and controlled by developing countries. Full employment is achievable
universally, yet its form will depend on available domestic resources and their directed
use. This review is a milestone in ongoing research regarding the management of external
constraints and monetary sovereignty in the periphery from the MMT perspective. Future
lines of work will include modeling MMT-inspired policies such as the JG, floating rates,
and zero interest rate policies in less developed economies using stock-flow consistent open
economy models, such as those developed by Godley and Lavoie (2007a,2007b).
Author Contributions: Conceptualization, E.C.-H. and S.M.-M.; methodology, E.C.-H.; validation,
S.M.-M. and A.M.; investigation, E.C.-H. and S.M.-M.; resources, E.C.-H. and S.M.-M.; writing—
original draft preparation, E.C.-H. and S.M.-M.; writing—review and editing, E.C.-H., S.M.-M. and
A.M. All authors have read and agreed to the published version of the manuscript.
Funding: This research received no external funding.
Conflicts of Interest: The authors declare no conflicts of interest.
Notes
1For the development of the PRISMA method, an adaptation of Page et al. (2021) has been made.
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