Sovereign Money and Modern Monetary Theory (MMT)

“The proper aim is to try and reconstruct society on such a basis that poverty will be impossible.” - Oscar Wilde

Strap-up people – because today we’re getting technical! But progressive politics should elucidate concrete steps and proposals, right!? Today at the #AEMS #summerschool, Christian Felber shared his vision of a value-centric (as opposed to profit-centric) alternative to the existing financial and economic system. It’s called the Economy for the Common Good (ECG). Currently, over 90% of money is created by commercial banks, quite contrary to popular opinion. Furthermore, they can generate money out of nothing. (Sounds unbelievable? Even Forbes stresses this point; Anyway, Christian wants to change all that, to make banks function more like most people already think they do - but he doesn't want to stop there, either. In the ECG, central banks will be the only issuers of “sovereign” money. Sovereign money itself is an interesting concept. Instead of having money being created out of nothing through loans, as is currently done (debt = money), sovereign money (as we understood it) is rather like a gift from the government (a “democratic dividend”) – and so constitutes debt-free money. Yey!? New money is periodically re-introduced into the economy as old money comes to the end of its life cycle – because sovereign money is effectively a demurrage currency (it expires/deteriorates via negative interest rates or progressive account charges).* Any other money introduced into supply (e.g., from commerical banks loaning from central banks) comes with strings attached. Enter compulsory Common Good reporting (alongside traditional financial reporting) and Citizen Assemblies... Need I say more?! (Well, of course - for more info check out the website ( or watch this snippet video, "What is the ECG?" 

So how to get there? The ECG stresses that all economic decisions need to be made democratically. Instead of leaving the "mysteries" of economy in so called experts' hands, citizens meet in money conventions, where they debate very basic decisions. In money conventions, citizens would decide who runs the central banks, who defines their mandate and what their goals and instruments should be - to ensure that central banks serve the common good. Commercial banks also face new regulations in the ECG: they can only loan sovereign money (explained above) or money that their customers explicity put into savings-accounts, while current account money remains separated from their balance sheets, and cannot be loaned by the bank. Another interesting aspect about loans in the ECG is that they will only be handed out after a monetary and ethical screening of purpose. So if you wanted to invest in fracking in Canada - well, I guess you couldn't. The ethical screening is an interesting concept. For us, the ECG means using the money system for the purpose it was initiatlly invented: to serve people. We don't live in Adam Smith's time, where we can rely upon an invisible hand. The hand in the ECG is a common good oriented one and it is very much visible and under proper democratic control.

Maurice Höfgen elucidated some of the key features of our current economic system, which defies so much of our common-sense assumptions of how it works. Unlike Christian's prescriptive contribution, however, Maurice stressed that Modern Monetary Theory (MMT) is a descriptive lens - neither inherently right or left politically, nor a regime to be implemented. What this lens can offer us is a change of perspective. A key point Maurice made was the fundamental difference between private actors and governments. We have to earn money before we spend it. But governments spend first and THEN collect taxes (which is how governments "earn" money). If you take this perspective, government debt is like an (interest free) loan to all citizens. As Maurice pointed out, government debt can be considered as money in private pockets (what David Graeber calls the Peter-Paul Principle; Governments are not financially constrained, as their ability to create debt is not limited (as everyone elses is in a society) - but resources (natural, human, social) are. MMT stresses these real limitations to the economy - over and above mere accountancy concerns. How can we align our activities to planetary and social boundaries? Government debt is not inherently positive - it must be considered in relation to indicators like unemployment, sustainability, well-being and other economic measures. Is unemployment high? Well, then the government should rather spend more money for activating their "sleeping" resources! Is unemployment low? Then governments shouldn't go much further into debt! But how to redirect our public investments and activities away from conspicuous consumption towards care, resilience and well-being? (See the ECG, above!)

*Christian Felber, "From Positive Money to Sovereign Money: Advantages and Options of a Positive Money Reform" (April 2016; revised July 2020) Available online.

Written by: Charlotte Baar and Darragh Power

Based on the sessions "New thinking on money and finance - sovereign money" by Christian Felber and "New thinking on money and finance - modern monetary theory" by Maurice Höfgen during the AEMS summer school 2021.

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