This is why the debate matters more in African economies: the binding constraint is often not whether government can create local currency, but whether local-currency spending reduces the need for scarce foreign currency or simply intensifies the queue for it. External public debt service in Sub-Saharan Africa has been rising as a share of revenue, which makes the FX side of sovereignty impossible to ignore.
Absolutely right that financial sovereignty (the ability to create local currency) is not the same as real sovereignty over foreign exchange. Even if a government can spend in its own currency, it cannot compel foreign creditors to accept that currency for debt service. As you note, rising external public debt service as a share of revenue makes the FX side impossible to ignore.
Garzón Espinosa accused MMT of ignoring external constraints. The rebuttal in the article showed (I hope) that MMT does recognise them—but as real resource and FX availability constraints, not financial solvency ones. In many African economies, the government’s ability to spend local currency may simply redirect pressure toward FX markets rather than relieve it, unless that spending is deliberately structured to boost exports, substitute for imports, or attract hard currency.
In MMT terms, the policy answer is not to deny the constraint but to design spending that expands FX capacity—e.g., local-currency investment in agriculture to reduce food imports, or in renewable energy to cut fuel imports. Without that, domestic spending can indeed just “intensify the queue” for scarce foreign currency, especially if imports are inelastic. For insight far greater than mine check out @globalsouthperspectives.
I will write further on this, also I will post a graphic I have prepared to support a future article as a note, these replies won't allow images.
My main point is no: we get that there are constraints, and you're close to correct with the fixed exchange ones in how they work, but they're not bounded by a mathematical law and have more flexibility than Post-Keynesian Structuralists recognise, yet they're still constrained.
There's more nuance to that again, depending on where you are on the spectrum of monetary sovereignty and what your institutional capabilities are, but in general, the above is the answer.
Darren, thank you for this and for sharing the link to your substack piece. I have read it.
Just to clarify the intent of my original piece: it was written for a lay audience – people who may have encountered Eduardo Garzón Espinosa’s paper and come away thinking that MMT simply “ignores” external constraints, imported inflation, or the currency hierarchy. My goal was not to present an original theoretical advance, but to show, with direct quotes from the primary MMT literature, that Espinosa was arguing against a caricature. For a non-specialist, understanding that such tools are commonly used to strawman MMT is, I think, the important first correction.
Now, your comment moves the debate to a more sophisticated plane – exactly where it should go after that correction is made. You say:
“We get that there are constraints … but they’re not bounded by a mathematical law and have more flexibility than Post-Keynesian Structuralists recognise, yet they’re still constrained.”
I completely agree. And this is where I think your spectrum-of-sovereignty framing is helpful. Too often, many fall into binary thinking: either “no financial constraint at all” or “hard external limit like a stock of reserves hitting zero.” Reality is messier. As you note, institutional capabilities, policy tools (capital management, swap lines, regional payment systems), and the degree of dollarisation all shift where the binding constraint actually bites.
Your point “more nuance again, depending on where you are on the spectrum of monetary sovereignty” is exactly what a lay reader needs to hear after they’ve understood that orthodoxy will fight back and the tools it uses are not pretty, but when held up to the light - they lack understanding of MMT and of the economic principles that they have misused for decades.
Thanks, Michael. I understood it was for a lay audience. However, I have also encountered people who take our rule-of-thumb teaching tools (I wanted to write pedagogical heuristics) to the extreme, instead of realising we are just laying a foundation for the next step.
"People take our pedagogical heuristics to the extreme, instead of realising we are just laying a foundation for the next step."
Exactly that.
My piece was aimed at correcting Espinosa's caricature, so I necessarily focused on the foundation: showing that MMT does, in fact, recognise external constraints, imported inflation, and currency hierarchy. For a lay reader who has only seen the straw man, I see that as the first step.
But you're right that some people – including, occasionally, self-taught MMT advocates – then treat that foundation as the whole story. They hear "no financial constraint" and stop listening at "no constraint". They miss the next step: how real resource constraints, FX availability, institutional capacity, and geopolitical position modulate what's possible.
So my piece was a rebuttal to one error (the caricature). Your comment is a corrective to the opposite error (the over-simplification). Both, I think, are essential. Trying to cover all of the bases in every article, paper - even book, will scare off, or bore to death, all but those who probably get it anyway.
If we all stick together and point people to sources of information appropriate to their understanding of MMT, and/or specific field of interest, we as a cohort, will have nearly all of the bases covered.
Thanks again for your insight, both economically and pedagogically.
Right back at you. While I haven't read everything you've written, and I don't think I need to, I can say quite confidently that your work is excellent!
Thank you Darren, your writing was one of the reasons that prompted me to dust off my tarnished old quill pen. Ironically writing it seems, takes up much of the time previously spent reading - I do try to keep up though.
Someone on twitter has said that it appears that many critics get their MMT knowledge from twitter. Not the best place to build a robust working understanding of any economic position. It is both amusing and alarming that there are a few recent books/articles that claim to discredit MMT - yet display very little comprehension of either its substance or its intent.
Very true. I don't consider myself to have a particularly robust working knowledge of MMT but my guess is that the books/articles seeking to discredit MMT come from the usual suspects whose ideological biases preclude an honest attempt to understand MMT.
You have an open mind. That will enable you to learn lots from various schools of thought, wherever you end up you will have a body of knowledge far broader than taught in many institutions.
This is why the debate matters more in African economies: the binding constraint is often not whether government can create local currency, but whether local-currency spending reduces the need for scarce foreign currency or simply intensifies the queue for it. External public debt service in Sub-Saharan Africa has been rising as a share of revenue, which makes the FX side of sovereignty impossible to ignore.
Absolutely right that financial sovereignty (the ability to create local currency) is not the same as real sovereignty over foreign exchange. Even if a government can spend in its own currency, it cannot compel foreign creditors to accept that currency for debt service. As you note, rising external public debt service as a share of revenue makes the FX side impossible to ignore.
Garzón Espinosa accused MMT of ignoring external constraints. The rebuttal in the article showed (I hope) that MMT does recognise them—but as real resource and FX availability constraints, not financial solvency ones. In many African economies, the government’s ability to spend local currency may simply redirect pressure toward FX markets rather than relieve it, unless that spending is deliberately structured to boost exports, substitute for imports, or attract hard currency.
In MMT terms, the policy answer is not to deny the constraint but to design spending that expands FX capacity—e.g., local-currency investment in agriculture to reduce food imports, or in renewable energy to cut fuel imports. Without that, domestic spending can indeed just “intensify the queue” for scarce foreign currency, especially if imports are inelastic. For insight far greater than mine check out @globalsouthperspectives.
I will write further on this, also I will post a graphic I have prepared to support a future article as a note, these replies won't allow images.
Excellent work. And yes, I've written a lot on external constraints/balance of payments, this one is likely the best catch-all - https://darrenquinn.substack.com/p/the-thirlwall-trap-why-we-dont-need
My main point is no: we get that there are constraints, and you're close to correct with the fixed exchange ones in how they work, but they're not bounded by a mathematical law and have more flexibility than Post-Keynesian Structuralists recognise, yet they're still constrained.
There's more nuance to that again, depending on where you are on the spectrum of monetary sovereignty and what your institutional capabilities are, but in general, the above is the answer.
Darren, thank you for this and for sharing the link to your substack piece. I have read it.
Just to clarify the intent of my original piece: it was written for a lay audience – people who may have encountered Eduardo Garzón Espinosa’s paper and come away thinking that MMT simply “ignores” external constraints, imported inflation, or the currency hierarchy. My goal was not to present an original theoretical advance, but to show, with direct quotes from the primary MMT literature, that Espinosa was arguing against a caricature. For a non-specialist, understanding that such tools are commonly used to strawman MMT is, I think, the important first correction.
Now, your comment moves the debate to a more sophisticated plane – exactly where it should go after that correction is made. You say:
“We get that there are constraints … but they’re not bounded by a mathematical law and have more flexibility than Post-Keynesian Structuralists recognise, yet they’re still constrained.”
I completely agree. And this is where I think your spectrum-of-sovereignty framing is helpful. Too often, many fall into binary thinking: either “no financial constraint at all” or “hard external limit like a stock of reserves hitting zero.” Reality is messier. As you note, institutional capabilities, policy tools (capital management, swap lines, regional payment systems), and the degree of dollarisation all shift where the binding constraint actually bites.
Your point “more nuance again, depending on where you are on the spectrum of monetary sovereignty” is exactly what a lay reader needs to hear after they’ve understood that orthodoxy will fight back and the tools it uses are not pretty, but when held up to the light - they lack understanding of MMT and of the economic principles that they have misused for decades.
Thanks, Michael. I understood it was for a lay audience. However, I have also encountered people who take our rule-of-thumb teaching tools (I wanted to write pedagogical heuristics) to the extreme, instead of realising we are just laying a foundation for the next step.
"People take our pedagogical heuristics to the extreme, instead of realising we are just laying a foundation for the next step."
Exactly that.
My piece was aimed at correcting Espinosa's caricature, so I necessarily focused on the foundation: showing that MMT does, in fact, recognise external constraints, imported inflation, and currency hierarchy. For a lay reader who has only seen the straw man, I see that as the first step.
But you're right that some people – including, occasionally, self-taught MMT advocates – then treat that foundation as the whole story. They hear "no financial constraint" and stop listening at "no constraint". They miss the next step: how real resource constraints, FX availability, institutional capacity, and geopolitical position modulate what's possible.
So my piece was a rebuttal to one error (the caricature). Your comment is a corrective to the opposite error (the over-simplification). Both, I think, are essential. Trying to cover all of the bases in every article, paper - even book, will scare off, or bore to death, all but those who probably get it anyway.
If we all stick together and point people to sources of information appropriate to their understanding of MMT, and/or specific field of interest, we as a cohort, will have nearly all of the bases covered.
Thanks again for your insight, both economically and pedagogically.
Right back at you. While I haven't read everything you've written, and I don't think I need to, I can say quite confidently that your work is excellent!
Thank you Darren, your writing was one of the reasons that prompted me to dust off my tarnished old quill pen. Ironically writing it seems, takes up much of the time previously spent reading - I do try to keep up though.
Thanks for the further explanation. In my opinion, your rebuttal does show that MMT doesn't ignore external constraints.
Someone on twitter has said that it appears that many critics get their MMT knowledge from twitter. Not the best place to build a robust working understanding of any economic position. It is both amusing and alarming that there are a few recent books/articles that claim to discredit MMT - yet display very little comprehension of either its substance or its intent.
Very true. I don't consider myself to have a particularly robust working knowledge of MMT but my guess is that the books/articles seeking to discredit MMT come from the usual suspects whose ideological biases preclude an honest attempt to understand MMT.
You have an open mind. That will enable you to learn lots from various schools of thought, wherever you end up you will have a body of knowledge far broader than taught in many institutions.