This post contains many academic sources related to the concept of financial or monetary sovereignty, featuring the work of Denison University economics professor Fadhel Kaboub (Twitter) and Senegalese development economist Ndongo Samba Sylla (Twitter).
|Related post: The MMT view of the reserve currency, or petrodollar.|
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This post was last updated April 4, 2021.
Disclaimer: I have studied MMT since February of 2018. I’m not an economist or academic and I don’t speak for the MMT project. The information in this post is my best understanding but I don’t assert it to be perfectly accurate. In order to ensure accuracy, you should rely on the expert sources linked throughout. If you have feedback to improve this post, please get in touch.
Full-financial sovereignty or monetary sovereignty
Many MMT economists choose the terms Full-financial sovereignty or monetary sovereignty. Here’s a 2020 paper by Scott Fullwiler where he uses the later. Warren Mosler prefers not to use either term, but rather just describe the situation and necessary characteristics. For example, here’s an excerpt from a 2007 talk by Warren:
If a government chooses a fixed exchange rate policy, and simultaneously attempts to achieve full employment, it could very well lose its foreign exchange reserves. […] With a floating rate currency, interest rates are set exogenously and fx reserves are not at risk. Therefore full employment policy can achieve full employment with no risk of loss of fx reserves. […] With full employment as a national goal, I think a floating rate currency is the only hope of sustaining success.
Fadhel Kaboub uses the term financial sovereignty. From his 2015 paper, A Note on Financial Sovereignty:
A financially sovereign country is defined as a country that:
- [issue] its own fiat currency;
- collects taxes, fines, and duties in its own currency;
- only issues bonds denominated in its own currency (not in foreign currencies); and
- operates under a flexible exchange rate regime.
Finally, here’s a brief comparison between countries with high and low (or no) sovereignty (Kaboub 2015):
…countries like the United States, Japan, Canada, and Australia, among others, enjoy full financial sovereignty, which gives them a wider fiscal policy space to finance domestic job creation, public infrastructure, education, public health, and social services. However, countries that have completely given up their financial sovereignty are subject to very severe fiscal policy constraints that can only be relieved by either generating substantial trade surpluses and foreign currency reserves (Germany is a good example), or through adequate access to international capital markets, IMF loans, or other bilateral loans, all of which come with fiscal austerity requirements that often forbid expansionary fiscal expenditures (e.g., Greece, Spain, and Portugal, who now use a foreign currency (the euro), or Ecuador, which uses the US dollar as its national currency). Most developing countries have limited financial sovereignty because of their substantial foreign debt, which limits but does not entirely prevent them from introducing a scaled down version of job creation programs that enhance quality of life and economic prosperity for their citizens.
Academic references, featuring the work of Fadhel Kaboub
- Greg Davidson, Paul Davidson, 2016 book, Economics for a Civilized Society
- Bill Mitchell’s 2013 post, Fiscal space is a real, not a financial concept
- Scott Fullwiler’s 2020 paper, When the Interest Rate on the National Debt is a Policy Variable (alternative link)
- Warren Mosler’s 2007 paper (script of a talk), Exchange Rate Policy and Full Employment
- There’s an illuminating and brief discussion of trade near the end of Clint Ballinger’s 2018 book 1000 Castaways: Fundamentals of Economics.
- Fadhel Kaboub’s 2015 paper defining financial sovereignty and its policy implications: A Note on Financial Sovereignty (9 pages)
- A February 2020 article by Ndongo Samba Sylla: Modern Monetary Theory in the Periphery: What does MMT have to offer developing nations?
- “Africa’s Pandemic Response Calls for Reclaiming Economic and Monetary Sovereignty: An Open Letter.” Located at the bottom of this page with several hundred signatories.
- A framing of MMT in the Global South, in this 2020 video: Fadhel Kaboub explains how to use Modern Monetary Theory (MMT) in the context of the Global South
- A non-academic overview of monetary sovereignty by Rodger Malcom Mitchell in a 2010 post.
- A 2020 lecture plus Q&A with John Harvey on capital flow and controls, centering around his book Currencies, Capital Flows and Crises: a Post-Keynesian analysis of exchange rate determination. This subject is closely related to how foreign actors can use speculation to sabotage other economies.
- Here is an in-depth discussion by Bill Mitchell in 2019, on how MMT applies to developing nations, centering around the concept of trade: There is no internal MMT rift on trade or development
- Fadhel’s 2019 article, Why Government Spending Can’t Turn the U.S. Into Venezuela
- More related sources from Sherry Reson’s We CAN Have Nice Things
- Podcast interviews:
- Ndongo Samba Sylla and Fadhel Kaboub on Historic-ly, 9/2020: Africa Needs Monetary Sovereignty
- Ndongo and Fadhel on Macro N’ Cheese, 11/2019: The Spectrum of Monetary Sovereignty in Developing Nations
- Fadhel’s Jan 2020 interview with Historic-ly on how the IMF is a tool of powerful nations (those with full financial sovereignty) to deliberately kick the global ladder, keeping less powerful nations powerless, by preventing an increase in sovereignty.
- Fadhel on MMT Podcast: episode 35a, 10/2019: The Quest For Monetary Sovereignty In Africa
- Fadhel on MMT Podcast: episode 12, 1/2019: Monetary Sovereignty, Colonialism and Independence
- Fadhel’s April 2019 appearance on Bloomberg News’ Odd Lots: This Is How MMT Applies To Emerging Markets
2019 conference panel: Money, Imperialism, and Development
The full panel with Fadhel and Ndongo on the second day of the 2019 International MMT Conference in Long Island New York. According to original MMT developer L. Randall Wray, “This one-two punch is the best panel on MMT I have ever seen.”
(And, I have to say: the orange-black charger Fadhel is holding at the beginning, plus the blue-green “CM” logo on the top-right of the screen as the slides are being loaded, are both mine. So I’m forever part of the best panel on MMT Randy Wray has ever seen 😁.)
The quest for economic and monetary sovereignty in 21st century Africa
Here are talks by Fadhel at that conference:
“MMT, Monetary Sovereignty & Sustainable Prosperity in Africa”:
Morning keynote by professor Fadhel Kaboub: “Reclaiming Monetary Sovereignty and Sustainable Prosperity in Africa”:
Monetary sovereignty according to other MMT economists and academics
Sometimes, people ask me whether MMT applies to countries outside the United States. It does! Even though the US dollar is considered special because of its status as the global reserve currency, lots of other countries have the power to make their monetary systems work for their people. So, if you’re reading this book outside the USA, don’t assume there are no important lessons here for you and your country. On the contrary, MMT can be used to describe and improve the policy choices available to any country with a high degree of monetary sovereignty—the US, Japan, the UK, Australia, Canada, and many more. And, as we’ll see in Chapter 5, MMT also offers insights for countries with little or no monetary sovereignty—nations like Panama, Tunisia, Greece, Venezuela, and many more.
And from note four in chapter one:
We should note that MMT does not consider monetary sovereignty a binary thing. It is best to think of a spectrum of monetary sovereignty, with some countries having more and others less. Because the US dollar is at the center of the global financial system—that is, it is the reserve currency—the United States has unparalleled monetary sovereignty. But countries like Japan, the UK, and Australia have a high degree of monetary sovereignty as well. Even China, which manages the value of the yuan, has substantial monetary sovereignty.
[MMT] is a descriptive framework that discusses the implications of both having, and not having, high degrees of monetary sovereignty. A lot of the analytical work involves exploring the capacity offered by having a high degree of sovereignty, but that analysis is not only applicable to countries that enjoy sovereignty today, it is applicable to any country seeking to understand what changes will achieve greater flexibility. In the same way as a theory of human development may stress the greater capacities adults have vis-a-vis children, without making that theory inapplicable to children as well.
Finally, a 2018 talk by Nathan Tankus on monetary sovereignty: