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Modern Monetary Theory (MMT)

Modern Monetary Theory or Modern Money Theory (MMT)

The Modern Monetary Theory is an alternative to the traditional macroeconomic theory. Generally, MMT suggests that there is no limit to the quantity of money that can be created by a central bank. The only limit comes from the impact of inflation.

In short, MMT suggests that countries and governments controlling reserve currencies can borrow and spend as much as they need to achieve employment, and later, create more currency to repay their debt.

MMT Economists are focused on fiscal policies

According to MMT, governments can create new money through their fiscal policy. The government’s fiscal policy is focused on budgeting and includes:

• Taxation
• Government spending, and
• Transfer payments

Triffin Dilemma

Triffin Dilemma (Reserve Currency Paradox)

Robert, Baron Triffin was a Belgian-American economist who was openly against the Bretton Woods monetary system. Triffin dilemma or else Triffin paradox refers to countries whose currencies are used as global reserve currencies, like the United States and the US dollar.

Describing the Triffin Dilemma

Identified in the 1960s, the Triffin dilemma describes a situation where there is a conflict of interest between short-term domestic objectives and long-term international objectives. These are some facts regarding the country that is issuing the global reserve currency: