Monetary sovereignty and external constraints: Identifying the flaws of modern monetary theory

Abstract The concept of monetary sovereignty employed by Modern Monetary Theory has been criticised on many fronts. One of the most important criticisms points out that Modern Monetary Theorists (MMTers) ignore or underestimate problems arising from external constraints. Another important (and complementary) criticism is that MMTers focus only on purely macroeconomic aspects and ignore political and geopolitical issues. In this paper, we discuss these important criticisms and we conclude that, although the MMT concept of monetary sovereignty is useful and can be considered an analytical advance, it is incomplete and biased because it minimises macroeconomic problems arising from external constraints and because it does not take into account international political factors.