1.Money

2. What is Money? All money exists as an IOU The I is the debtor The U is the creditor IOUs are recorded in a money of account The Australian dollar The US dollar Japanese Yen The British pound The Euro 3. The Money of Account The money of account is abstract Like a meter, a kilogram or a hector It cannot be seen or felt It is representational, something invented byhumans In any modern nation, the money of account ischosen by the national government 4. The Power of the State MMT emphasizes the states power over money Recognized as far back as Aristotle, through Adam Smithand into the modern era John Maynard Keynes told us: The age of Chartalist or State Money was reached when theState claimed the right to declare what thing should answer asmoney to the current money-of-account To-day all civilisedmoney is, beyond the possibility of dispute, chartalist. 5. A Sovereign Government Defines the money of account Imposes taxes, fees and other obligations Decides what it will accept in payment to itself Chooses how it will make its own payments 6. Sovereign Money Most governments choose their own uniquemoney of account and issue their own a unique currency One Nation, One Money US dollar bills and coins Mexican peso bills and coins British pound notes and coins Most governments also require that taxes be paid in a currency thatthe state has the exclusive power to issue These currencies are sovereign money 7. Taxes Drive Money As long as the state has the power to enforce its taxlaws, the people will need the governments money The currency will have value, and people will sellthings (goods and services) to the government inorder to get governments money Whatever the government accepts in payment toitself will become the definitive money in thesystem The only final means of settlement 8. The Hierarchy of Money The private sectorleverages the Govtgovernments money Banks, business firms andBankshouseholds all issue theirown money IOUs Businesses Results in a debt pyramid Households Where some IOUs are betterthan others 9. The US Hierarchy Operates with itsown fiat money $Collects taxes in dollars & IssuesSpends in dollarsthecurrencyUnited States Government 10. The Benefits of Sovereignty The government can never go broke or run out of money It can afford anything that is for sale in the domestic unit of account It does not need to borrow its own currency It can set the policy interest rate at any level It has an expanded policy space 11. Pre-1971, Bretton Woods Spending had to becontrolledPromised to convert USdollars into goldDollars were$subordinate at a fixed priceUnited States Government 12. Fixed Exchange Rates Vulnerable to speculativeSpending had toattack be limitedSacrificedUS$control of Ruble or Pesointerest rates Could Couldnot issue not issueBoth heavily dependent ontrade surplusesRussian and Argentina 13. What About the Euro? EMU is an exceptional case Where the currency is divorced from the nation The Euro is effectively a foreign currency from theperspective of the individual nations The EUR-17 are users of the currency They lack the powers of a sovereign issuer 14. The Euro is NOT a Sovereign Currency EUR-17 must borrowthe currency Must pay marketDoes notinterest ratesissue Can run out of Euros Lacks the policy spaceof a sovereign issuer Italy 15. Money Matters A sovereign government should be in control of thecurrency that sits at the top of its pyramid Otherwise, it lacks the power to keep its domesticeconomy on track By virtue of its power to create or destroy money by fiatand its power to take money away from people bytaxation, [the State] is in a position to keep the rate ofspending in the economy at the level required to[maintain full employment] ~Abba P. Lerner, 1947