Currency Issuers vs Currency Users
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- Опубликовано: 6 сен 2024
- In any modern economy, there is an important distinction to be made between currency issuers and currency users. Currency issuers are governments that issue their own currency by decree of the state and currency users are everyone else in the economy that does not have the capacity to create or issue their own currency. Currency users include households, individuals and businesses.
In this video we go into the details about the distinctions between currency issuing governments and currency using governments. We look into how this affects countries that use the Euro and also look at how pegging their currency to the US Dollar contributed to hyperinflation in Venezuela.
Note: The video lists China alongside other nations that issue their own currency. China does issue the Renminbi, denominated in Yuan, but it should not be inferred that China operates with a floating exchange system. Chinese currency is pegged to the value of the US Dollar in a unique operation. www.tandfonlin...
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Sources:
The Deficit Myth by Stephanie Kelton
Everything You Want to Know About Modern Monetary Theory by L Randall Wray | Bloomberg Markets and Finance - • Everything You Want to...
Manhattan Project to prevent Hyper-Inflation by J.D. Alt - neweconomicper...
Thinking in a Modern Monetary Theory Way by Professor William Mitchell - • Professor William Mitc...
Written by Andrew Johnson and Jackson Winter
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Found you from your Facebook comment (you linked a different video, I'm just poking around). This is good shit.
Thanks very much!
So basically, what gold bugs are saying is that no one should be a currency issuer - everyone, including governments, should be a currency user.
Nice video! Always neat to get an explanation of how Venezuela got hyperinflation that isn’t “Socialism is bad!”
Additionally, does this mean like countries like Argentina, Zimbabwe, and Weimar Germany that experienced hyperinflation pegged their money to something else or had some kind of foreign debt? Additionally is this the reason why currency issuers like the U.S., China, and Japan have huge deficits and don’t have hyperinflation while the other countries I mentioned do?
Thanks so much.
Yep, there's always a reason for hyperinflation that is not directly related to deficit spending. The over deficit spending usually occurs AFTER the hyperinflation has already started to occur and the usual response by the mainstream is to hike interest rates to bring about unemployment and therefore decrease aggregate demand. But despite interest rates being under the umbrella of monetary policy, this interest becomes income for the private sector and contributes to the deficit, and exacerbates the problem.
You're correct. Argentina pegged their currency to the USD, under instruction from the IMF.
Zimbabwe was a supply shock when Mugabe came in and repossessed agricultural land (farms) and gave them from the experienced farmers to inexperienced farmers. It meant that the agricultural sector, with unskilled workers, could no longer keep up with demand as supply fell.
Weimar Germany was a case of war reparations demanded by the Allies (post WW1), which saw the Government keep deficit spending, but not increase taxes sufficiently to ensure there was enough fiscal space for the reparations to be paid. At the same time, it was being smashed on the FX. The Weimar Government had also let the banks expand credit too much and were still agreeing to meet this demand.
As for the likes of US and Japan, they all issue debt (ie bonds) in their own currency, so providing they continue to do this, they can pay any debt owing. While China manages its exchange rate incredibly well, but runs a surplus on the government account. The US and Japanese government deficits become the net wealth of the private sector though. The US and Japan meet the terms that MMT describes, that is, currency monopolists operating in floating exchange regimes. China will no doubt follow suit soon and float their currency.
Well it was Socialist policies that resulted in the poor development and diversification of Venezuela's economy that left it susceptible to a supply shock. Zimbabwe underwent a Soviet style dekulakisation of their farmlands: redistribution of land from productive farmers to unproductive ones, similarly resulting in a supply shock that drove hyperinflation. Socialist governments have a pretty terrible track record in managing economies in general.
@@PEGSInstitute Thank you! Could you recommend any more material that explains what happened to Zimbabwe and Venezuela in a non-mainstream way?
Ownership and trust are the only real currencies.
Didn’t a supply shock in basic resources due to a decrease in necessary imports and a decrease in productive capacity also contribute massively to Venezuela’s hyperinflation?
Certainly hyperinflation doesn't have a single event that causes it. There's a lot of factors in causing such a massive outcome.
Nice. So currency issuers can also delegate the ability to issue currency to private banks?
It's more like the currency issuer backs all loans made by banks, but it's functionally very similar
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What happens when a nation in the EU or a state in the US defaults? Why would the EU not bail out a nation or the federal government not bail out a state? If I was governor of Colorado and wanted to build a city with money the state does not have, what would happen? Would the federal government just let the state go bankrupt and no private institute would want to work with the state again?