Unfulfilled Potential

A monetarily sovereign government is one that issues its own currency and is the currency’s sole issuer. Ideally, it allows the currency’s value to float in relation to other currencies in foreign exchange markets, meaning its currency is not convertible at a fixed rate into either another currency or a commodity (other than possibly the commodity labor-power through the provision of a job guarantee). Although this ideal maximizes policy space, a government that promises convertibility can renege at a later date, and so, strictly speaking, does not relinquish its monetary sovereignty so long as it retains the authority to issue its own currency. A monetarily sovereign government that operates a flexible exchange rate faces no revenue constraint provided it refrains from borrowing in a foreign currency and so avoids exchange-rate risk on its debt.

A monetarily sovereign society might be said to be a society that has endowed its government with the authority to issue the currency on its behalf and holds its government to democratic account. If accountability is lacking, then although government might be sovereign, the society itself will not be. The possibilities open to a monetarily sovereign society are immense. But this potential can only be realized through the exertion of considerable grassroots pressure on government. Without this, the prospect is tyranny rather than liberation, and social and economic exclusion rather than inclusion.

This danger is not due to a government’s monetary sovereignty. The same dangers confront any society that is unable, unwilling or uninterested in holding its government to account, whether that government is monetarily sovereign or non-sovereign. If anything, the dangers would seem to be worse under a monetarily non-sovereign government, because then society is placed at the whim of a currency issuer without even a semblance of democratic accountability.

The source of the danger, then, is not monetary sovereignty. Rather, a government’s monetary sovereignty creates a potential for meaningful social progress. But it is only a potential, and can only be fulfilled through genuine democracy conducted by an informed citizenry.

Right now, it is perhaps fair to say that an informed citizenry and, as a consequence, genuine democracy, are almost entirely lacking in the specific area of macroeconomics.

At minimum, an informed citizenry would understand that, due to monetary sovereignty:

If we can do it, we can afford it.

For a society to allow its government to pretend otherwise would seem to reflect a state of almost collective hallucination.