Bill Mitchell — MMT and the external sector – redux

This blog post is written for a workshop I am participating in Germany on Saturday, October 13, 2018. The panel I am part of is focusing on external trade and currency issues. In this post, I bring together the basic arguments I will be presenting. One of the issues that is often brought up in relation to Modern Monetary Theory (MMT) relates to the foreign exchange markets and the external accounts of nations (particularly the Current Account). Even progressive-minded economists seem to reach an impasse when the question of whether a current account should be in surplus or deficit and if it is in deficit does this somehow constrains the capacity of currency-issuing governments to use its fiscal policy instruments (spending and taxation) to maintain full employment. in this post I address those issues and discuss nuances of the MMT perspective on the external sector.

Bill Mitchell – billy blog
MMT and the external sector – redux
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Andrew Black — Exchange Rate Regimes & Modern Monetary Theory

There have been heated discussions concerning the advantages and disadvantages of what is known as “Modern Monetary Theory”. This theory makes a number of claims, some of which appear unreasonable and impractical to Keynesian economists and others with an economic policy focus. The aim of this discussion paper is to throw more light on the nature of exchange rate relationships internationally. The reason for doing this is that MMT protagonists claim that many economic ills would be resolved if a country has its own currency, which can move freely against other currencies. To take a somewhat extreme proposition, MMT protagonists have argued that in the interests of securing full employment, deficit funding can be safely embarked upon through the government simply printing more money.[i] While this may be technically true for domestic savers and consumers, it overlooks the importance of foreign holders of domestic assets and bonds. If a high government deficit then causes difficulties for foreign owners of national assets, this is entirely manageable, they say, through a devaluation of the currency. As Palley put it, 

“All countries face inflation and financial sector stability constraints, but the US is essentially free of a foreign exchange market constraint. However, that constraint is very visible in many other countries, which explains their greater intuitive scepticism about MMT.” (Palley, 2015, p. 20.) 

The main aim of this short discussion paper is to clarify just what the predominate forms of exchange rate regimes are across the world. If the advantages claimed by proponents of MMT are/were so manifest, then it would be reasonable to expect that a free floating exchange rate regime would be the preferred option internationally. As shall be seen, this turns out not to be the case, and the number of countries with their own free floating currencies is a minority, and one that appears to be shrinking....

London Metropolitan Institute — Global Policy Institute
Exchange Rate Regimes & Modern Monetary Theory
Dr Andrew Black, GPI Opinion

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