Monetary sovereignty under debate: the history of money and its controversial political implications

Abstract

In this paper we examine the concept of monetary sovereignty. A detailed analysis of how fiscal and monetary policy is coordinated and of real and artificial restrictions for its operation are required in order to specify the political implications that are a consequence of the specific design of the institutional framework, which is usually ignored in the literature. The understanding of the nature of the operations involved is directly related to the understanding of a fundamental institution: money. Therefore, we first analyze what money is through its origin and historical testimonies that account for aspects related to how what an authority establishes to redeem obligations with it achieves widespread acceptance. After that, we illustrate through a theoretical simplification of the contemporary economic system the interrelations between the Treasury and the central bank, emphasizing the implications that the Chartalist theory of money has to study the different intermediate steps that disguise the real function of taxes and treasury bonds. In conclusion, we will reflect on the importance of designing an operationally functional monetary system whose fundamental pillar is monetary sovereignty.