The Core Significance of Taxation and Currency Sovereignty in a Nutshell

A government with the authority to tax can ensure acceptance of a particular currency. By nominating a currency in which income and wealth are to be assessed, and imposing taxes that can only be paid in the nominated currency, the government establishes a demand for the currency.

This is true whether the government issues its own currency or instead adopts a currency issued by some other entity.

But a government that adopts somebody else’s currency is reduced to the status of mere currency user and, as a consequence, faces financial constraints similar to those that bind private households and firms.

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