The Rise of Modern Monetary Theory

Businesses all throughout the world began raising prices at a rate not seen in decades last year. One of the world's most powerful economies, the United States, was the hardest hit. Last month, inflation in the US hit 8.6%, one of the highest rates in the world.

Whenever the inflation looks worrisome the government responsible for the respective currency tries to control the inflation by manipulating the volume of the currency. Whenever there is deficit in the economy the government tries to borrow money from other countries and have the obligation to settle the balance of trade arising out of borrowing, the government cannot rely on manipulating the volume of the currency is what we know as it may give headroom for inflation .However, there is an intriguing idea that suggests that countries with high-powered currencies can print their currency without fear of inflation due to the enormous power that they possess in the market.

In a nutshell, the theory contends that countries that issue their own currencies can never "run out of money" in the same way that individuals or businesses may. But, with surprising speed, what was once an obscure heterodox branch of economics has become a prominent topic of dispute among political parties and economists. As part of this theory, the thinking is that government deficits and national debt don't matter nearly as much as we think they do.

The entire premise of MMT is that because a sovereign body may borrow in its own currency, it can issue more money to pay off all of its debt. The only thing the central bank needs to do is maintain interest rates low.

Outsiders and those with more traditional values may perceive Modern Monetary Theory as an idealistic answer to the world's mounting economic difficulties. Despite the fact that the hypothesis is gaining popularity, there are many sceptics and opponents of the notion.

"Too big to fail" is a concept that can be regarded for businesses, but it is dubious when applied to an entire country.

Thank you.

Regards,

R.Ashwin,

Kautilya,

IBS Mumbai.