Currencies Come and Go, but Employment Always Takes Root: Rethinking External Constraints and Monetary Sovereignty in the Periphery

Esteban Cruz-Hidalgo, Stuart Medina-Miltimore and Agustin Mario

Economics Working Paper Archive from Levy Economics Institute

Abstract: This paper explores a development strategy for peripheral economies by advocating for a paradigm shift from traditional economic models that rely on accumulating foreign reserves. It proposes the job guarantee policy, an automatic stabilizer based on a reserve pool of employed individuals, as a cornerstone for fostering sustainable and inclusive growth. Grounded in Modern Money Theory (MMT), this study critiques the conventional approach that prioritizes external reserves and highlights the potential of MMT in offering a more autonomous development path for developing countries. A systematic review of the literature, using the PRISMA methodology, reveals significant disagreement between MMT advocates and critics, particularly regarding monetary sovereignty and the feasibility of implementing macroeconomic policies in peripheral economies. The study emphasizes that, while external constraints remain, the MMT perspective calls for flexible exchange rates (or, at least, discretionary intervention) and low interest rates as part of a broader strategy to reduce dependency on foreign currencies. The proposed approach prioritizes full employment, the mobilization of domestic resources, and structural transformation through policies like import substitution. It offers a more equitable and stable development path. Ultimately, this analysis underscores the potential of MMT-informed policies to enable sustainable development, despite challenges in implementation and political resistance.

Keywords: Job Guarantee; full employment; sustainable development; flexible exchange rates; peripheral economies; Modern Money Theory; developmentalism; structuralism; Employer of Last Resort; macroeconomic policies (search for similar items in EconPapers)
JEL-codes: B52 E52 E62 F63 O23 (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-mon and nep-pke
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.levyinstitute.org/wp-content/uploads/2025/11/wp_1101.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lev:wrkpap:wp_1101

Access Statistics for this paper

More papers in Economics Working Paper Archive from Levy Economics Institute
Bibliographic data for series maintained by Lindsey Carter ().