How Bitcoin Is An Answer To Modern Monetary Theory (MMT)?

If Bitcoin is to become the future of global finance, could it fit the billing of ‘MMT'? There is a new economic theory gaining popularity on the left end of the economic spectrum. It is called Modern Monetary Theory (MMT). In fact, so much so that it was one of the biggest talking points at the recently held World Economic Forum in Davos.

One of the most prominent voices against cryptos, Keynesian economist Nouriel Roubini, is also a supporter of the MMT theory. He sums it up in one sentence,

“The problem is not too much money printing, the problem is too little debasement because inflation remains very low.”

The perspective of the MMT model is not very clear still, however, there are some key ideas. As the Economist writes:

“A government that prints and borrows in its own currency cannot be forced to default since it can always create money to pay creditors. New money can also pay for government spending; tax revenues are unnecessary. Governments, furthermore, should use their budgets to manage demand and maintain full employment. The main constraint on government spending is not the mood of the bond market, but the availability of underused resources, like jobless workers. Raising spending when the economy is already at capacity can lead to rapid inflation. The purpose of taxes, then, is to keep inflation in check. Spending is the accelerator, taxation the brakes. Fiscal deficits are irrelevant as long as unemployment is low and prices are stable.”

This idea may seem strange to the people who are tied up to the traditional idea. However, this theory is finding bipartisan allies in both Alexandria Cortez’s camp and Donald Trump’s camp. What’s even more surprising is that this theory is finding support in the most unlikely of places; Wall Street.

So, How Does This Connect To The Existence Of A Lack Of Intrinsic Value In Other Cryptocurrencies?

Stephanie Kelton née Bell is an American economist and Professor of Public Policy and Economics at Stony Brook University argues that the fiat money is backed by the government ability to make us believe the currency, whereas cryptocurrency does not, so its belief is voluntary. In that sense, a national currency would have a backup that would secure the currency value. The cryptocurrency, on the other side, can have its value going to zero.

One reason for the misjudgments may be that the economic models that confidently strode down the mainstream were hammered out in the decades after World War II when American companies had an enormous appetite for capital investment. “We don’t live in that world anymore,” said Mr. Koo of Nomura. Today, vast fortunes shift across oceans in an instant, currencies are untethered from gold, and your local coffee shop may no longer accept cash.

A 2019 survey of leading economists showed a unanimous rejection of assertions attributed to modern monetary theory in the survey:

“Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt. […] Countries that borrow in their own currency can finance as much real government spending as they want by creating money”

However, there is no coherent explanation of integration of MMT and cryptocurrencies. What it does provide is a bridge between the right-leaning and left-leaning take on MMT. The left-leaning economist has always been wary of corporations controlling the money supply. Bitcoin certainly is an alternative to this.