Demand for the Currency & Value of the Currency

Modern Monetary Theory (MMT) makes clear that the only genuine constraint on fiscal policy in a sovereign currency system is real-resource availability. The reason government can always command available resources with its currency is that it is able to ensure a demand for the currency – a need within non-government to obtain the currency. With a demand for the currency established, government has the capacity to purchase whatever goods and services are available for sale in its own currency. Attempting to spend beyond this point, however, would be inflationary, and tend to devalue the currency. With this in mind, it is worth considering how, in the view of Modern Monetary Theorists, a monetarily sovereign government establishes a demand for its currency and, with this demand established, how the value of the currency is determined.

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