The Hierarchy of Monetary Sovereignty and Debt Capacity: Reassessing Global Debt Sustainability Through Currency Stratification

This study challenges conventional debt sustainability theories by proposing monetary hierarchy as the structural determinant of sovereign debt capacity. Against the backdrop of record-high global public debt and the failure of traditional debt threshold models to explain asymmetries (e.g., Japans stability at 260% debt/GDP vs. Sri Lankas default at 70%), this research integrates Prates monetary sovereignty framework and Zhus network power theory to establish currency stratification as a systemic driver of debt elasticity. Through a novel Currency Sovereignty Index (CSI)comprising global settlement share (S), reserve currency weight (R), and local-currency debt ratio (1-D)we classify economies into three tiers: Top (CSI70), Middle (40CSI<70), and Bottom (CSI<40). Empirical analysis reveals stark asymmetries: Top-tier nations (e.g., U.S., Eurozone) sustain higher debt levels due to privileges like deep liquidity buffers (S), reserve-backed stability (R), and policy flexibility (1-D), while Bottom-tier countries face crises at lower debt thresholds. A panel threshold regression identifies tier-specific debt inflection points, demonstrating how higher CSI suppresses spread surges. The study further examines Central Bank Digital Currencies (CBDCs) as hierarchy-shaping tools and stablecoins as accelerators of de facto dollarization.