Charlotte Street Partners



Modernising monetary theory

Written by Juan Palenzeula, associate
Edited by David Gaffney, partner
13 July 2020

Good morning,

Modern monetary theory (MMT) has come a long way. From its inception in the 1970s as a heterodox theory taken seriously only by a handful of economists, to becoming the weapon of choice for political candidates with expansive expenditure plans such as Alexandria Ocasio-Cortez, MMT is drifting into the mainstream, and the Covid-19 pandemic is accelerating its progress. 

Its proponents argue that given that countries issue their own currency, they could pay for their expenses by issuing more of that currency. This increase in the money supply – popularly known as “printing” money – would continue until inflation is high and problematic, or is expected to be. At that point, it should be controlled by raising taxes.

Many, including the Federal Reserve’s chairman and BlackRock’s chief executive, fear that this could lead to uncontrolled inflation. But with quantitative easing (QE) programmes growing across the OECD nations due to the pandemic, the main implications of MMT would probably be not so dissimilar to those that this new wave of QE will cause. 

Critics also point at the experiences of Argentina, Zimbabwe and Venezuela, where the monetisation of deficits caused severe hyperinflation. What they miss is that in these cases, corruption, political instability and an inability to borrow in their own currency played an equal, if not larger, role.  

As a historic new QE programme is deployed in Britain, only time will tell if inflation takes off after the crisis. If that is not the case,  MMT will deserve at least serious consideration by mainstream economists. 


Poland celebrated a presidential election yesterday, although votes are still being counted. A final exit poll today showed Andrzej Duda, the populist incumbent, with a slim 51% majority over the liberal Warsaw mayor Rafal Trzaskowski. The vote is widely seen as a battle for the country’s future, and will determine, to a large extent, its future relations with the European Union. 

Minister for the cabinet office Michael Gove said that wearing face masks in shops would be “absolutely a good idea”, but that it should be left to people’s judgement. The comments came after it was reported that the British prime minister, Boris Johnson, is planning to make face coverings compulsory in shops. 

US president Donald Trump wore a facemask in public for the very first time on Saturday. Trump, who was visiting a military hospital, previously said that he would not wear a mask and even mocked Democratic rival Joe Biden for doing so.

Business and economy

WeWork is reportedly on track to have positive cash flow in 2021, a year sooner than expected, its executive chairman, Marcelo Claure, said during the weekend. The comments come after the company reduced its workforce by more than 8,000 people, renegotiated its leases and sold off assets. Claure added that he expects demand for flexible work spaces to increase due to the pandemic. 

Primark, the retailer, said that it will not take advantage of the £30m bonus it would receive as part of the job retention scheme, potentially putting pressure on other major firms to follow suit and not take the taxpayer money. A spokesperson commented that “the company believes it should not be necessary to apply for payment under the bonus scheme on current circumstances.” 

OPEC, the cartel of oil-producing countries, is expected to announce an increase in output this week amid signs that demand is increasing. Member countries will meet on Tuesday and Wednesday, with the move anticipated to be announced shortly afterwards. 

Columns of note

In the Financial Times, Gavyn Davies welcomes the increasing assertiveness of central banks which, far from being impotent, have been crucial actors in the pandemic. 

On Project Syndicate, Mo Ibrahim argues that debt relief until the end of 2021 will be necessary for African countries to handle the damaging effects of the Covid-19 crisis in its aftermath. 

Source: Evening Standard


The week ahead

On Thursday, the European Central Bank will hold a policy meeting where no rate changes are expected. Investors will be looking to see if the ECB announces an early exit to its asset purchasing programme. 

On Friday, EU leaders will be meeting in Brussels to discuss a planned €750bn coronavirus recovery package and the EU’s next term budget. The size of the budget is important, as member states have been at odds with it since the commission introduced the proposal back in May.  

At some point during the week, Boris Johnson is expected to unveil new plans to phase Huawei out of the UK’s 5G mobile infrastructure following intense pressure from Conservative MPs and the United States.

What’s happening today?

Q2 Results
Centamin PLC 

Rua Life Sci.

Mind Gym Plc
Polarean Imag

Fastfwd Innov

Final dividend payment date
3i Infrastructure

Source: Financial Times

did you know

Andrew Carnegie tried to give the Philippines $20m so the country could buy its independence from the United States.

Parliamentary highlights

House of Commons

Oral questions
Home Office (including Topical Questions)

Supply and Appropriation (Main Estimates) Bill: proceedings (all stages)

Procedural Motion relating to the Stamp Duty Land Tax (Temporary Relief) Bill

Stamp Duty Land Tax (Temporary Relief) Bill: all stages

Membership of the Intelligence and Security Committee

Pressures on independent pharmacies – Bob Seely

House of Lords 

Oral questions

Private Notice Question

EU Coronavirus Vaccine Programme – Baroness Thornton

Business and Planning Bill – Committee stage – Earl Howe

Scottish Parliament 

In recess until 10 August (with the exception of 16, 23, 30 July 2020 and 6 August 2020, on which dates business may be programmed by the bureau)

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