Monetary Agency

The term monetary sovereignty is sometimes used in MMT literature to describe governments that issue their own non-convertible, floating currency. Recognizing that no nation is truly independent or sovereign in an absolute sense in our interconnected world, we prefer to use terms like monetary agency or fiscal capacity. In any case, the key point is that any nation that issues its own currency (e.g. the U.S., Japan, Canada) will generally have more fiscal capacity if it can maintain the following:
  • Makes no promises to convert its currency to other currencies or gold at a fixed rate;
  • Allows the currency to float in foreign exchange;
  • Has no (or minimal) debt in other nations’ currencies (or gold);
  • Operates a central bank function to manage interest rates and payments.
Countries that do not meet one or more of these criteria are often subject to greater domestic fiscal policy policy limitations.