Even a country that operates with a gold standard is really operating with monetary IOUs, albeit with some of those IOUs convertible on demand to a precious metal. Jan Kregel, in his work at unctad, has used this approach in analysis of the economies of developing nations. Since that time, great strides have been made in applications of the theory to developing an understanding of the operational details involved.
Here, however, it will be argued that a country that chooses an exchange rate target may not be able to pursue domestic policy devoted to achieving full employment with robust economic growth. As I am aiming for a nonspecialist audience, I am leaving those details out of the primer. Still, much of the literature explicitly addresses the case of developed nations that operate with floating exchange rates. It also presented the theory and examined both fiscal and monetary policy from the modern money point of view.
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This leads to a discussion of monetary and fiscal policynot only what policy can do, but also what policy should. We will see that money cannot be a commodity, rather, it must be an IOU. We will also examine the nature of credit worthiness, that is, the reason why some monetary liabilities are more acceptable than others. Some supporters have even argued that MMT cannot be applied to fixed exchange rate regimes. Randall Wray, this week we begin a new feature. The theory, however, is not difficult. A Primer should provide a general overview that can be adapted to specific national situations. To be sure, that criticism is overdone because modern money theorists have applied the approach to a number of other countries, including Australia, Canada, Mexico, Brazil, and China. We next move to a discussion of currency regimesranging from fixed exchange rate systems (currency board arrangements and pegs to managed float regimes, and finally to floating exchange rates. We can think of the possibilities as a continuum, with many developed nations toward the floating rate end of the spectrum and many developing nations toward the fixed exchange rate end. My first attempt at a synthesis was in my 1998 book, Understanding Modern Money.