This should be fundamental in anyone's understanding of MMT. See Randy Wray, MMP BLOG #8: TAXES DRIVE MONEY.
Taxes drive money. One of the most important powers claimed by sovereign government is the authority to levy and collect taxes (and other payments made to government including fees and fines). Tax obligations are levied in the national money of account—dollars in the US, Canada, and Australia, Yen in Japan, Yuan in China, and Pesos in Mexico. Further, the sovereign government also determines what can be delivered to satisfy the tax obligation. In all modern nations, it is the government’s own currency that is accepted in payment of taxes.A state must be able not only to levy taxes but also to collect them. That implies that, first, the state must be able to enforce its tax law and, secondly, it must also do so. If it can't, or chooses not to, then that state is not fully sovereign in its currency. Similarly, the state must not only outlaw counterfeiting, and it must also enforce this ban effectively in order to have a currency monopoly (which is the basis of MMT according to Warren Mosler).
This brings in a considerable swath of tax policy and tax justice. For a state to be monetarily sovereign, it must have an adequate tax policy, be able to enforce it, and do so. This is fundamental to the "taxes drive money" principle.
Tax Research UK
Tax abuse, tax havens and Modern Monetary Theory
Richard Murphy | Professor of Practice in International Political Economy at City University, London; Director of Tax Research UK; non-executive director of Cambridge Econometrics, and a member of the Progressive Economy Forum
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And this points to the number one limitation of so-called MMT: sovereign governments cannot tax foreign suppliers, so they cannot force them to supply anything by paying in "sovereign" money.
Invariably foreign suppliers want to be paid in "strong currency", whatever that is at that point in history, on delivery.
The other fundamental limitation of so-called MMT is related: there are no monetary systems in history where an "MMT" soft currency has existed alone, the choice has always been only between two systems:
* One with a single "strong currency" like the mark or the euro or the swiss franc or the yen, with extremely limited "MMT" margins of action.
* Another with both an MMT "soft currency" like the drachma, lira, peso, bolivar, sterling, franch franc, peseta, for paying the little people, and one with a "strong currency" like the mark or the euro for the important people.
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