MMT AND EXTERNAL CONSTRAINTS

by Randall Wray

MMT AND EXTERNAL CONSTRAINTS

Frankly, I do not know if Nepal would do better if it floated. I suspect that for many of the world’s poorest countries, the exchange rate regime is not the central issue—and they are probably screwed whether they fix or they float.

Critics of MMT love to point to such cases as proof that MMT is somehow wrong. They challenge us to find a solution to the problems faced by poor countries. If MMT cannot find a simple solution to the complex problems facing developing nations, then somehow MMT is wrong. It is a most bizarre claim.

All we claim is that with a sovereign, floating currency a government of a developing nation can “afford” to employ all its domestic resources that are willing to work for the domestic currency.

Will such a nation be able to import all that it wants? Probably not. Would pegging the exchange rate allow it to import more? Maybe—but then it is very likely that it will have to give up full employment at home. And it will be subject to insolvency and default risk (because it has promised to deliver something it might not be able to deliver).

Is that a trade-off that is in the domestic interest? I doubt it, but I am not sure.

What I observe out in the real world is that pegged exchange rates in developing countries are usually in the interests of the elites—who like their luxury imports and vacations in NYC and Disneyworld. Typically somewhere around half the population is either unemployed or “casually” employed (washing windshields of the luxury imports at stoplights). Seems like a bad trade-off to me.

About Kristjan

Defitsiidi terrorismi vastase pataljoni eriüksuslane (finantsignorantsuse vastu võitlemise osakond). Treening: MMT, postkeinsism, Tartu Ülikool Majandusteadus
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