Conclusions

In this Primer we have explored the macro identities as well as the stock-flow implications that are necessary to formulate policy for any sovereign nation, including developing nations. We carefully examined operational realities for a nation that adopts a sovereign currency. We have also explored the constraints imposed by different currency regimes on domestic policy formation. We concluded that floating a currency, even if it is a managed float, opens up more domestic policy space. Still, even in the context of a developing nation operating with a pegged currency, the space available to the issuer of the currency (the sovereign government) is almost certainly greater than what is generally recognized. Understanding how a currency issuer spends and taxes, and why a currency issuer sells bonds, helps to expand policy options under all exchange rate regimes. That led us to the functional finance approach that argues that government should use its budget to achieve what it perceives to be in the public purpose. Importantly, government should promote full employment with price stability. We analyzed one possible program that could be used to achieve that goal: the job guarantee or employer of last resort program. Finally, we examined the “nature” of money.