Monetary Sovereignty or monetary sovereignty is defined as a function, role and authority for the existence of the Central bank as the official authority of a country in implementing regulatory and controlling policies and maintaining currency stabilization while still having a significant influence in supporting the economic system so that it remains on the path set. .
This implies that every step and policy of the central bank, be it Fiscal and Monetary policies related to market intervention as well as the implementation and control and regulation of the exchange rate regime, can influence and improve economic and financial turmoil which has the ultimate goal of being able to encourage liquidity in a favorable direction. better and able to increase market confidence and sentiment which is expected to strengthen positively in the short and long term because the policy decided by the monetary authority is one of the keys in the recovery process and improvement of the favorable economic situation in the future.
Monetary sovereignty also looks at and analyzes the role of the monetary authority in creating regulations and policies in regulating and controlling financial institutions and banking institutions to follow directions and implement all policies decided to be implemented with full compliance, obedience and awareness by the institutions under them, especially those concerning policies. benchmark interest rates, and policies in controlling inflation as well as efforts to support and strengthen the national currency.
What if the function of the role of authority and the existence of the monetary authority results in policies that are less responsive to market players, often causing negative sentiment due to the emergence of various perceptions and frictions and polemics in interpreting the policy, the conclusion is that the monetary authority has lost or experienced institutional weakness, a crisis of credibility and trust which ultimately reduces the role and function of the central bank as an institution that has full and independent sovereignty in regulating a country’s monetary matters.
In the end, to realize the concept and principle of monetary sovereignty, it is necessary to apply the principles, professionalism, independence, credibility, a pro-market policy approach and still refer to the provisions of the laws that underlie it so that every policy implemented is truly purely for the benefit of supporting the economic system without any other elements behind it.
The foundation of MMT is actually an economic theory that was coined by a British economist John Maynard Keynes in the 1930s to the 1940s. Those who developed this theory claim to be the successors of post-Keynessian economic theory which is now known as modern monetary theory. In modern monetary theory, much has been discussed about the importance of new economic actions which of course are very contrary to conventional economics that runs in the world today.
The main idea of the MMT is that the government does not need to doubt or fear the emergence of a high state budget deficit, inflation, fluctuations in the exchange rate, to spending too much for economic recovery. Pro-MMT economists assess that the government can play a major role in controlling economic problems, including inflation. Under the MMT assumption, the government can print as much new money as needed to encourage economic growth, MSMEs, reduce the burden of foreign debt, and provide more jobs. . To put it simply: in urgent conditions such as an economic recession, the option of printing new money is considered far better than returning to debt to the world bank which will add to the burden of the country’s existing debt.
In its use and in its implementation, it seems that MMT should be set by the government in a situation like this where the world is in a bad condition while the government is still relying on debt which of course may have the same fate as neighboring countries, Previously MMT had a core principle that could be a way getting out of this problem can also bring the Indonesian people to prosperity.
CORE PRINCIPLES OF MMT
The central idea of MMT is that governments with fiat currency systems under their control can and should print (or make with a few keystrokes in today’s digital age) as much money as they need to spend because they cannot go bankrupt or go bankrupt unless a political decision to did it taken.
Some say such spending would not be fiscally responsible because debt would swell and inflation would skyrocket. But according to MMT, large government debt is not a precursor to collapse, as we have long believed, countries like the US can maintain much larger deficits without cause for concern, and small deficits or surpluses can be very dangerous and cause a recession because of spending. the deficit is what builds people’s savings, MMT theorists explain that debt is simply money the government puts into the economy and is not taxed back. They also argue that comparing the government budget with the average household budget is a mistake.
While proponents of the theory admit that inflation is theoretically a possible outcome of such spending, they say it is highly unlikely and can be combated by future policy decisions if needed. They often cite the example of Japan, which has a much higher public debt than the US
According to MMT, the only limitation the government has in terms of spending is the availability of tangible resources, such as workers, construction equipment, etc. When government spending is too large in relation to available resources, inflation can spike if decision makers are not careful. Taxes create a sustainable demand for the currency and are a tool to get money out of an increasingly hot economy, says MMT. that taxes are basically meant to give the government money to spend on building infrastructure, funding social welfare programs, etc.
“What happens if you go to your local IRS office to pay your taxes in real cash?,” wrote MMT pioneer Warren Mosler in his book The 7 Deadly Frauds of Economic Policy1. as payment. Next, they will count it, give you a receipt and, hopefully, thank you for helping pay social security, interest on the national debt, and the Iraq war. Then, once you, the taxpayer, leave the room, they will take the proceeds your hard work that you just paid for and threw it into the crusher.”
MMT says the government doesn’t need to sell bonds to borrow money, because that’s money it can make itself. The government sold bonds to drain excess reserves and hit its target interest rate overnight. Thus, the existence of bonds, which Mosler calls “a savings account at the Fed,” is not a requirement for governments but a policy choice.
Unemployment is the result of the government spending too little when collecting taxes, according to MMT. It said those looking for work and unable to find work in the private sector should be provided with a minimum wage, transitional job funded by the government and managed by local communities. This labor will act as a buffer stock to help the government control inflation in the economy.
