Some current criticisms of MMT’s position on currency sovereignty

According to MMT’s proponents, national governments can enjoy substantial fiscal and monetary policy options provided they meet two sets of conditions (see, e.g. Wray, Reference Wray2015; Reference Wray2019; Mitchell and Fazi, Reference Mitchell and Fazi2017; Mitchell et al., Reference Mitchell, Wray and Watts2019). The first set is the currency conditions. These were recently listed by Wray as follows:

A further currency condition for monetary sovereignty specified by Wray is that the national currency’s exchange rate should not be tied to another currency and be allowed to float freely. The second set of conditions is the governance conditions. Governments that issue their own currency never face budget constraints as do households and firms, but they still face resource constraints. A government that continues to issue money to finance its spending when the domestic economy is near or at full resource capacity will cause inflation. Even when the economy has spare resource capacity, a government that spends unwisely or operates a wrong taxation structure can cause inefficient utilisation and distribution of domestic resources. Thus, good political management on the part of a national government is as important to creating fiscal and monetary policy space as is its control over its domestic currency.

MMT’s core propositions have met with an array of criticisms. See, for example, the special issue of real-world economics review devoted to the theme (Fullbrook and Morgan, Reference Fullbrook and Morgan2019). But here we focus on the particular criticism that MMT abstracts from the fact that not all sovereign and freely floating currencies are equal, but instead occupy highly unequal positions in the international currency system, with the result that the degree of monetary sovereignty and the corresponding fiscal and monetary policy capacities of governments vary along a spectrum.Footnote ¹ Thus, where the US government sits at one end of the spectrum with full monetary sovereignty and expansive fiscal capacities (courtesy of the dollar’s predominance in the private sphere and as a reserve currency in the official sphere), the great majority of EME governments remain firmly stuck at the other end of the spectrum with very little sovereignty and limited fiscal capacities due to their currencies’ low position in the currency system and hence to their vulnerability to the vicissitudes of international portfolio flows. Gerald Epstein has been particularly forceful on these points. As he states:

While some proponents of MMT have seemed ready to concede that currency sovereignty does possibly vary across a spectrum (e.g. Tankus, Reference Tankus2018), others have rejected this idea outright. As Fazi and Mitchell put it:

The question that arises is this: how can ‘core MMT developers’ possibly maintain that all monetarily sovereign governments have the same fiscal capacities when there is compelling evidence that governments with small, non-internationally used currencies have such limited capacities due to these currencies’ exposure to international portfolio flows? The answer is that the empirical evidence presented to the proponents of MMT has thus far not been backed by an equally compelling critique of their theory. Critics and proponents of MMT alike accept three basic facts: (i) that the US’s financial markets are considerably larger than are those of the EMEs; (ii) that the US dollar is more internationally prominent than are the EME currencies; and (iii) that as a consequence of the first two facts, international investment flows can have a more damaging impact on the EME financial markets and their currencies than on US financial markets and the dollar. Yet, despite the common acceptance of these facts, there is disagreement over their policy implications, with MMT’s critics arguing that EME governments have fewer policy options compared to those available to the US government. The fundamental reason why proponents of MMT can continue to hold to this position is the failure on the part of its critics to adequately explain the inner connection between the contrasting sizes of countries’ financial securities markets and thus the inner connection between the contrasting positions of their currencies in the international currency system. As a result, the contrasts of large versus small financial markets and of strong versus weak currencies are presented as if they are mutually independent categories. The USA may have a large financial market and the dollar may be more internationally predominant, but the fact that each financial market and each currency is looked at separately and only in direct relation to the global domain rather than in relation to each other means that whatever the US government does in taking advantage of its large financial market and the dollar’s international predominance has no bearing on what other monetarily sovereign governments do. This leaves the door open to the assertion that EMEs have the same monetary and fiscal policy options as does the US government. That door is closed once it is shown that the contrasting sizes of the US’s and EME’s financial markets and the contrasting strengths of their respective currencies are not mutually independent but are interdependent and that international investment flows serve as the medium through which this interdependence is enforced. In expanding on this argument, we begin with some global financial market data.

The flaws in MMT that cause it to miss the dollar’s gravitational force

The foreign exchange market is the world’s largest financial market with a current daily turnover volume of $7.5 trillion. A fact just as striking as the large size of this market is the large degree to which it is dominated by just one currency, the US dollar: its 44% share of daily forex turnover is almost three times the euro’s 15% share and more than three times the combined 13% share of the world’s EME currencies, China’s renminbi included.Footnote ² While the US’s relatively large production base continues to play a role in the dollar’s international dominance, the more important role today is that played by the US’s vast financial securities markets and by the substantial presence of foreign institutional investors in those markets. In 2024, the USA accounted for 39.7% of the world’s $142 trillion bond stocks and 47.4% of the world’s $130.4 trillion equity stocks (SIFMA, 2025). In the same year, foreign investors held nearly a quarter, $27.6 trillion, of the total outstanding US securities stocks of $118.2 trillion. It is because foreign investors hold considerable amounts of dollar securities for value storage purposes that explains the dollar’s dominant use in other international capacities. In this context, the role played by the US treasury market, which is the deepest and most liquid of all the US securities markets (in 2024, e.g. treasuries amounted to over $29 trillion) is doubly important in that on the one side it is highly attractive to foreign private asset managers who use treasury bonds as the safe haven core of their dollar bond portfolios (in 2024, foreign private treasury holdings averaged $4.2 trillion). On the other side, it is also attractive to foreign central banks that use treasury bonds as their primary reserve asset (in 2024, foreign official treasury holdings averaged $4 trillion). The importance of this latter observation can be gauged from the fact that while the total world volume of allocated central bank reserves rose from around $3 trillion in 2000 to around $13 trillion by 2024, US treasuries have on average accounted for around 60% of these reserves (IMF, 2024). In effect, the dollar’s role in the international official sphere, courtesy of the reserve asset role of US treasury bonds, is even more significant than its role in the international private sphere.

The question that arises out of the above observations is whether MMT’s general analytical framework can give any meaningful accommodation to the pivotal role of US treasuries in underpinning the dollar’s international dominance and to foreign investors’ contribution to that role. The answer is that it cannot. Nothing better illustrates this point than the following passage from a paper published in 2010 by Nersisyan and Wray, two of the leading proponents of MMT:

What is remarkable about this passage’s general discussion of government bonds is that, when applied to the specific case of US treasury bonds, it shows a complete failure to understand the crucial importance of two quantity-related aspects of these bonds: namely, those concerning their volume on the one hand and their value storage capacity on the other.

Take first the issue of treasury bond volume. The obvious question that arises here is whether foreign investors can make a vital contribution to the US government’s rising debt mountain if the issuance of these securities is, as Nersisyan and Wray put it, a ‘voluntary operation’ by a sovereign government and if, given the ‘voluntary’ nature of bond issuance, the US government chooses to finance its debt purely through money creation. The answer is surely negative because money creation is bound by the ‘endogeneity’ principle, that is, the amount of money in circulation is ultimately determined by the amount demanded by households and firms for consumption and investment purposes, which in turn means that any residual amount of dollar-denominated currency after deducting that held by US citizens would be strictly limited. Bonds, by contrast, are not as tightly bound by the endogeneity principle. The amounts of bonds that governments can issue are not limitless, but as the principal function of bonds is to serve as portable stores of value rather than as mediums of exchange as in the case of money, the amounts of these debt instruments that can be issued by governments to finance their expenditures can exceed underlying real economy constraints to a greater degree than would be possible if they relied solely on money creation. In this context, the relation between domestic and foreign holdings of US government debt is considerably altered because, whatever the limits to the government bond demand capacity of US investors, the US government can continue to issue its treasury bonds on an ever-expanding scale by tapping into the foreign investor demand for them. It is indicative of the importance of this demand to treasury bond volume that while the latter grew from around $3 trillion in 2000 to $29 trillion by 2024, foreign treasury holdings averaged around 30% of the total. Now if one of the US government’s prime considerations is to contain its borrowing costs while at the same time increasing its borrowing volumes, then it must follow that the issuance of bonds is not so much a ‘voluntary’ operation as one of necessity given that this is really the only way that foreign investors can make a major contribution to this cost containment objective.

Take next the issue of value storage capacity. When Nersisyan and Wray state that ‘issuing bonds is a voluntary operation that gives the public the opportunity to substitute their non-interest-earning government liabilities – currency and reserves at the central bank – into interest-earning government liabilities, such as treasury bills and bonds, which are credit balances in securities accounts at the same central bank’, the strong implication here is that there is really no essential distinction between bonds and money: one earns interest and that the other does not. From a government’s standpoint, this distinction may seem irrelevant because it may not really matter to it whether it finances its expenditure through currency creation or through bond issuance, but from the standpoint of pension funds and other institutional asset managers, the distinction between non-interest-bearing money and interest-bearing bonds is absolutely crucial. These investors hold both types of government liabilities in their portfolios, but where government-issued currency is held principally for transaction purposes, to facilitate the buying and selling of other assets, government bonds are held principally for value storage purposes as are corporate bonds and equities. Given that these bonds in common with all other financial securities have no intrinsic value, it follows that it is only through their prices that they can serve as stores of value, but as their prices are nothing other than the present discounted values of future interest payments it further follows that these prices can only be made solid enough to hold determinate quantities of value over time if the payments are regularly made at the required rates and at the required intervals. The upshot is that when institutional investors expect to earn interest on bonds, this expectation is not merely a matter of returns for their own sake, that is to say, a matter of earning extra income through bond holdings as opposed to cash holdings. Rather, it is also a matter of consolidating the quantitative value storage capacity of bonds. What ultimately sets US treasury bonds apart from the majority of other government-issued bonds is not only the sheer abundance of these bonds that can serve as stores of value but also the solidity of their value storage capacity, a solidity that is underpinned both by the US government’s power of taxation and by its commitment to good governance and the rule of law.

Now, if we generalise the above three-way connection between governance, cash return regularity, and price solidity of securities, we can understand why the US financial markets are not only exceptionally large in size but also have a very deep mass. As noted, securities have no intrinsic value, being in the end nothing other than promissory notes, which means that in the absence of a strong legal and governance infrastructure that guarantees regular cash returns, they are always in danger of remaining just that, promissory notes. On the contrary, the existence of such an infrastructure ensures the transformation of securities into genuine stores of value. From being particles without matter, securities become particles filled with matter, with the result that when a country’s securities are aggregated together, this aggregation gives that country’s capital market mass. To put the distinction between the size and mass of a capital market more formally, where size can be defined simply as Np, N being the number of securities and p the prices of these securities, mass can be defined as Np(g), with g representing the governance constraint on security issuers aimed at solidifying the prices and hence value storage capacities of their securities by ensuring investor primacy over cash returns. Proceeding from this distinction, it follows that no country’s capital market has greater mass and power of attraction than that of the USA because none can compete with the USA in providing foreign investors with an abundance of value containers in which to store their funds. This said, the advantages to foreign investors in holding US securities have to be paid for in that they will generally earn below world average returns on these securities because, for example, they will carry comparatively low liquidity risk premiums (due to the depth of dollar markets), low credit risk premiums (due to the general strength of the US’ legal and governance infrastructure), and, what is above all significant, no currency risk premium (due to the range of choice of dollar securities across which large pools of funds can be moved without being subject to exchange rate frictions). The upshot is that the large mass of dollar securities continually begets an even greater mass as foreign investors trade low returns on their dollar assets off against the benefits accruing from them, thereby enabling the US’s corporations and government to issue increasing amounts of securities on a relatively cost-efficient basis.

With the above discussion in mind, we return to the question of whether the policy options available to monetarily sovereign governments vary along a spectrum. Recall that proponents of MMT deny that there is any such variation because in their theory, policy independence only comes down to two essential factors: namely, that governments issue their own currency and do not tie their currency’s international rate to that of any other currency. The reality is that in today’s financialised world, the role played by foreign investors in countries constitutes a third determinant of policy space because the variation in this space correlates with the size and mass of a country’s domestic capital market and because these attributes in turn vary according to the type of contribution made by foreign investors. In this respect, consider the case of the US government that has maximum policy options. Should its adoption of any particular policy cause fluctuations in the dollar’s international exchange rate against other currencies, this fluctuation will have an economic impact on the US’s exporting and importing firms, an impact that then sets in train portfolio investment shifts across US financial securities with monies flowing into the securities of firms that have benefitted from the dollar’s fluctuation and out of the securities of firms that have been adversely affected. As these investment shifts occur within the same dollar-denominated mass of securities, they do not further aggravate the fluctuation in the dollar’s international value, thus limiting its negative effects on the underlying real economy. It is this crucial fact that the large mass of financial securities behind the US dollar acts as a currency shock-absorber that explains why the US monetary authorities can treat the dollar’s international value with ‘benign neglect’, which then explains why they can conduct their domestic policies without reference to the policy of any other country. But here is the point about the foreign contribution to the US government’s policy options: if they are maximised because of the sheer mass of securities behind the dollar, then what must also be vital to this maximisation is the heavy involvement of foreign investors in US securities markets as a whole and in the US treasury market in particular. As we shall now see, the flip side of the positive contribution to US government policy options made by foreign investors is the negative contribution that they make to the policy options of other governments and most notably those of the EMEs.

The dollar’s restrictive effects on EMEs’ policy options

A fact just as striking as the current scale of world securities volumes is their extremely unequal geographical breakdown. Where the USA at one end of the scale accounts for an average of 40% of these volumes, the EMEs (excluding China) at the other end account for an average of 5.5%. In 2024, for example, the EMEs’ aggregate contributions to that year’s global bond and equity stocks were 4.9% and 5.8%, respectively (SIFMA, 2025). These size differences are certainly substantial, but they become even more so when converted into currency terms, for while the US’s outstanding securities volumes exist as a single, same-sized dollar volume of securities, those of EMEs shrink to extremely small fragments when disaggregated according to their local currencies. These financial market size differences are of course in the first place determined by a range of domestic factors such as the size of production base, the rule of law, the strength of governance infrastructure, and so on. This said, the rapid expansion of international investment flows that has occurred in tandem with the expansion of the world’s securities markets has meant that these flows now play an additional role in cementing the size differences that separate the US’ financial markets from those of the EMEs. To understand this point, it is first necessary to dispel the idea that the investment flows into and out of EMEs are largely dictated by short-term speculative considerations. While some flows, particularly those associated with hedge funds, are indeed highly speculative in character, the majority now follow a determinate pattern that accords with the new structural changes in the US institutional asset management industry that is by far the world’s largest.

If we take the top US asset managers such as Blackrock, Vanguard, Fidelity and State Street Global we find that in addition to diversifying securities within individual portfolios they also diversify across portfolios according to a ‘core-satellite’ arrangement where the core portfolios typically consist of lower risk securities such as government bonds or large cap securities and the satellite portfolios consist of higher risk securities such as small cap securities. One rationale for this portfolio arrangement is that it allows the large asset managers to better meet the different investment objectives and risk appetites of their institutional and household clients. Another rationale is that it makes for more efficient managerial salary control: for example, those that manage core portfolios that are typically tied to a market index – the ‘beta factory’ managers – are typically paid less than are those that manage the higher risk and higher yielding portfolios, the ‘alpha creators’ (for an extensive discussion of these points, see Mulvihill, Reference Mulvihill2005; Grahl and Lysandrou, Reference Grahl and Lysandrou2006). The more relevant point in the context of the present discussion is that the large US asset managers, having now expanded their core-satellite investment structure on an international basis, typically include EME securities in their suite of satellite portfolios. In effect, what the large US managers are doing is replicating at the individual portfolio level the core-periphery structure of the global financial landscape where dollar-based securities markets dominate its core and the EME securities markets comprise the majority that are located on its periphery. This is not all, however. In replicating the core-periphery structure of global finance, the operationalisation of the core-satellite investment paradigm also reinforces that structure by virtue of undermining the EMEs’ ability to break out of it.

The explanation lies in the difference between what institutional asset managers earn on their EME securities holdings and what they earn on their US securities holdings, a difference that in turn comes down to the differences between the risks on securities and the corresponding yield premiums that must be factored into their prices. We have said that institutional investors in the USA tend to earn below world average returns on their dollar assets for the reasons given and that the large mass of dollar securities can therefore continually beget an even greater mass precisely because these investors are paid below world average returns on their dollar assets. By contrast, institutional investors tend to earn above world average returns on investments in EMEs that host small local currency-denominated financial markets because in these cases, there will typically be high risk premiums. EMEs with weak legal and governance infrastructures will have to pay high credit risk premiums, but even if they did substantively improve their record on this particular front they would still face high liquidity risk premiums (due to the thinness of their financial markets) and, what is most crucial, high currency risk premiums (due to the low use of their currencies in the international domain). Thus, the small masses of local currency-denominated securities produced by EMEs do not expand as US investors must be paid such high returns as compensation for the various risks attaching to EME securities. This seriously constrains the amounts that can be safely issued.

Clear evidence of how international portfolio flows help widen the size asymmetry separating the US and EME financial markets, and their government bond markets in particular, is provided in periods of global turbulence. The explanation is that in causing a heightened sense of instability and uncertainty and hence an ensuing investor flight to safety, it is invariably the USA that is the chief recipient of funds seeking safe harbour, while it is invariably EMEs that are the chief source of the fund outflows (Hördahl and Shim, Reference Hördahl and Shim2020). These outflows and the consequent negative impact on EME government bond yields were particularly severe following the outbreak of the Covid-19 pandemic at the end of 2019, which accounts for the fact that the rise in the size asymmetry separating the US and EME government bond markets was particularly sharp over the subsequent two years. While the outstanding amount of US treasury bonds rose from $16.67 trillion in 2019 to $20.93 trillion in 2020 and to $22.58 trillion in 2021, the yields on all tenors were kept low (those on the 10 year treasuries, e.g. fell from to 2.14% in 2019 to 0.88% in 2020 while rising to 1.44% in 2021 (SIFMA, 2022), a principal contributory factor being the high proportion of these bonds held by foreign institutional investors (thus, from $6.84 trillion in 2019, the total amount of US treasuries held by foreign investors rose to $7.07 trillion in 2020 and to $7.77 trillion in 2021 (SIFMA, 2022). When we turn to the case of EME governments, the contrasts with both their borrowing volumes and borrowing costs could not be greater. In 2021, EME (excluding China) government bond issuance came to about $1.4 trillion, a sum that was the same as that of 2019. While some EME governments were able to issue more bonds over 2020-21, a substantial number of others, notably those based in Latin America, the Middle East and North Africa, and Sub-Sahara Africa, actually issued less bonds over the two Covid-crisis stricken years because of the exceptionally high yields that had to be paid out to foreign investors (where yields on AA and BBB rated EME sovereign bonds averaged around 7%, the yields on BB rated bonds averaged around 11% and those on CCC rated bonds averaged a staggering 45% (OECD, 2022).

Heavy bond outflows from the EMEs in periods of market turmoil cause not only substantial increases in EME sovereign yields but also exert substantial downward pressure on EME currency exchange rates against the dollar. Where the US can treat its dollar’s rate against other currencies with benign neglect because of the shock-absorbing capacity of its large domestic financial markets, everything is reversed in EMEs with small financial markets. For EMEs, any investment shifts across securities triggered by the impact of exchange rate changes on exporting or importing firms also take the form of cross-currency shifts that in turn amplify the initial exchange rate change and hence its effects on the underlying real economy. Thus, policy makers in EMEs with small financial markets, the very smallness of which can cause them to be currency shock amplifiers, do not have the luxury of treating their currencies’ international value –that is, their rate against the dollar – with benign neglect. While some devaluation against the dollar would result in an increase in import costs and thus in the domestic inflation rate, any further persistent devaluation could reach the stage where imports could not be paid for at all as foreign investors would demand such high returns as compensation for the risk on local currency-denominated assets, including government bonds, as would force EMEs into insolvency. It is for this reason that so many EME governments choose to keep their currencies’ rates against the dollar within a target range. This not only means that these governments must keep an eye on US monetary policy but also, where possible, that substantial dollar reserves be held for currency market intervention purposes.

According to MMT’s proponents, the fear of insolvency on the part of monetarily sovereign EMEs is unfounded because there will always be a foreign demand for their local currency-denominated assets no matter what their devalued rate against the dollar. To quote from a 2007 article by Fadhel Kaboub that focuses on the case of Tunisia:

The same argument, put in a more general way, was advanced by Warren Mitchell in a 2009 blog post:

What is striking about these statements is that while there is complete confidence that monetarily sovereign countries, including EMEs, can always rely on foreign investor demand for their local currency-denominated assets, there is no explanation of the type of foreign investors that exercise this demand. The reality is that the majority are institutional asset managers and portfolio investors that, unlike multinational corporations, have no physical presence in the foreign countries that they invest in and whose decisions regarding these investments have less to do with factors that are internal to these countries than with external factors. Even if EMEs do offer ‘a sufficiently stable economic and political environment’ for foreign institutional investors, the latter will withdraw their investments without hesitation if external circumstances demand it. Consider in this respect the taper tantrum episode of 2013. In May of that year, Ben Bernanke, then chair of the Federal Reserve, announced that the Fed would start to wind down its purchases of treasuries that it had been doing as part of its quantitative easing programme that was launched in the wake of the financial crisis of 2007–8. In the event, there was no reduction in the Fed’s treasury bond purchases, but the mere announcement to this effect sufficed to spark heavy outflows of funds from EME financial markets with negative impacts on EME sovereign bond yields and currency exchange rates. In effect, the taper tantrum episode is a perfect illustration of the extent to which EME financial markets and their currencies are subject to the gravitational force of the dollar markets and hence of the extent to which the policy space open to EME governments is circumscribed by the policy actions of the US government.

Some policy-related lessons

The cardinal lesson of the foregoing discussion is that if any country or region hopes to have its currency resist the gravitational pull of the dollar, it must expand its financial markets to the extent necessary to make its currency a centre of gravity in its own right. This is the lesson that had to be learned the hard way by the countries that formed the Euro in 1999. When the project for a single European currency was launched in the early 1990s, the main objective behind it was simply to further promote the process of closer integration in the trade, investment and production realms of the European Union economies and, for this reason, it was expected that only a few of these economies would be part of the single European currency at the outset while others would join when they met the eligibility criteria. By the time of the Euro’s launch in 1999, however, virtually every Euro applicant country was admitted (Greece was admitted in 2002) despite the fact that many of them did not meet the entry criteria as either specified in optimum currency area (OCA) theory or as laid down in the provisions of the Maastricht Treaty of 1991, a development that sparked criticisms that the Euro project was motivated entirely by political priorities and had no solid economic rationale (see, e.g. De Grauwe, Reference De Grauwe2013).

These criticisms have been countered by an opposing viewpoint which holds that in the contemporary era of financialisation, when the steep volume growth of financial securities markets has been accompanied by an equally steep volume growth of international financial flows, monetary union serves two distinct economic functions: not only an internal efficiency enhancing function in the sense that such a union between countries eliminates exchange rate volatility as a key impediment to their closer trade and production integration but also an external protection enhancing function in the sense that monetary union provides a sheltering hub both against global financial pressures in general and against the gravitational force of the dollar in particular (see Lysandrou and Stassinopoulos, Reference Lysandrou and Stassinopoulos2020; Lysandrou, Reference Lysandrou2025). The dilemma that faced the architects of the Eurozone is that these two distinctive functions of monetary union pull in completely opposite directions as regards its optimum size; for where the internal efficiency enhancing function is served the better the smaller is the number of the member countries of the union, the external protection enhancing function is served the better the larger is the number of member countries.

MMT’s proponents have always been highly critical of the Eurozone project on the grounds that its inclusion of so many countries with diverse economic profiles would mean that in the event of an external asymmetric shock, its weaker member countries would suffer disproportionately more than its stronger ones because of the loss of control over monetary policy that accompanies the loss of currency sovereignty (see, e.g. Sardoni and Wray, Reference Sardoni, Wray, Hein, Priewe and Truger2007; Mitchell, Reference Mitchell2015). When the great financial crisis of 2007–8 eventually spread to the Eurozone area and also to West Europe more widely in the ensuing period, it was indeed the case that several of its member countries, and most notably those on its southern perimeter, were particularly had hit and were thus particularly vulnerable to the German-led austerity slant in the euro-wide monetary policies pursued shortly after the government-financed bail outs of many of the eurozone’s major banks. In Greece’s case, the new Syriza government that was elected in 2015 did give serious consideration to exiting the Euro and returning to the Drachma because in addition to the constraining effects of the austerity-driven Euro-wide monetary policy, there were also the adverse effects of the harsh conditional terms imposed on Greece in return for financial assistance from the IMF, the European Commission and the European Central Bank (the so-called ‘troika’). In the event, the Syriza government pulled back from ‘Grexit’ because, bad as things were for Greece inside the Eurozone, its situation outside of it was likely to be far worse. This was demonstrated by Greece’s experience in the years leading up to its entry into the Euro in 2002 when it saw an endlessly spiralling cycle of currency devaluation and domestic inflation (by 2002 the Drachma’s value as measured against the Ecu (European currency unit) was one eighth of what it was in 1978, while Greece’s inflation rate over this 24-year period averaged between 12% and 15% (Lysandrou, Reference Lysandrou2015).

In my view, there is no question that the Eurozone needs serious structural reform such as, for example, an inclusion of a mechanism for fiscal transfers to help offset the negative effects of any external asymmetric shocks. That said, the specific question currently facing Greece and other smaller member states of the Eurozone is whether they are better off outside of the present and unreconstructed version of the Eurozone than inside it. For MMT’s proponents, the unequivocal answer is that they are better off outside because in reclaiming currency sovereignty and policy independence, they are better placed to promote economic growth and internal stability. In this context, it is interesting to go back to the early 2000s, when the Eurozone’s ‘stability and growth pact’ was presenting serious difficulties for many of its smaller member states, because this was when the MMT’s proponents repeatedly contrasted the latter’s experience with that of Argentina which had given up currency sovereignty in 1992 (albeit in the form of adopting a currency board based on the dollar) and then reclaimed that sovereignty in 2002 when the currency board was abandoned. In an article published in 2007 by Claudio Sardoni and Randall Wray that expressly compared the Argentinian and the European experiences regarding currency sovereignty, the authors stated that when:

Unfortunately for Argentina, the pesos issued by its central bank to help finance its post-currency board recovery programme ultimately ended up in fuelling double-digit rates of inflation and repeated devaluations of the peso against the dollar, all of which then eventually prepared the way for the election of a right-wing, libertarian president in 2024 who is openly committed to taking the country towards full dollarisation. Were Argentina to dollarize, then the contrast with Greece and the other smaller member states of the Eurozone as regards monetary and policy sovereignty would be very different to that as postulated by MMT because that contrast would now be between no sovereignty and shared sovereignty. Greece’s voice in the conduct of Eurozone-wide policy is very small as compared with Germany, but at least it has a seat at the ECB and can exercise its voice. In stark contrast, the US Federal Reserve has made it absolutely clear to any country that wishes to substitute its currency for the dollar (as it already has to Ecuador, El Salvador and to the other small EMEs that have already dollarised) that under no circumstances will it have a seat at the table and have a say in the conduct of US monetary policy. What this means is that dollarisation is in effect nothing other than financial colonisation. There can be no proponent of MMT who must feel the irony in this fact more acutely than does Fadhel Kaboub. While correctly arguing that among the root causes of the economic problems faced by many of the world’s EMEs are the post-colonial legacies of maldevelopment or dependent development (see Kaboub, Reference Kaboub2019a; Reference Kaboub2019b), his advice to these countries’ governments to retain their currency sovereignty as a means of escaping these legacies is in many instances tantamount to advising them to accept a new form of colonial subjugation in exchange for the old.