Modern Monetary Macroeconomics
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Modern Monetary Macroeconomics

A New Paradigm for Economic Policy

Edited by Claude Gnos and Sergio Rossi

This timely book uses cutting-edge research to analyse the fundamental causes of economic and financial crises, and illustrates the macroeconomic foundations required for future economic policymaking in order to avoid these crises.
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Chapter 9: Sovereign debt and interest payments

Bernard Schmitt


Is it correct to identify a country’s sovereign debt with the debt incurred by the State, that is, with what is commonly called the public debt? The answer is no: the domestic debt incurred by the public sector of any given country has nothing to do with the external indebtedness of the country itself. In reality, a country’s sovereign debt relates to the debt that both the private and the public sectors owe to external lenders. The aim of this chapter is to show that, because of the present non- system of international payments, sovereign debts are twice as high as they should be. Instead of lying only on those agents in either the public or the private sector that incur it, the external debt lies also, additionally, on the country as such. The addition of the sovereign debt resting on the country itself to the public and private external debt is pathological, and a reform is urgently called for allowing for its cancellation. Some introductory remarks on the nature of money and payments are opportune, before addressing the issue at stake in this chapter. Positive payments are always real, while monetary payments are zero sum transactions; no positive payment is ever carried out in a sum of money. Let us consider the case of a seller and a buyer of a commercial or a financial item. Apparently, the condition that should be satisfied in order for the seller to be paid is for her/him to obtain a credit of x units of money as a counterpart of the items s/he hands over. If this was indeed the case, x units of money would flow from the purchaser to the seller, and they would be the object of a net loss for the purchaser as well as a net gain for the seller. If the units of money were pebbles, shells, or metal coins (copper, silver, gold), the payment could indeed be described according to ‘tradition’, that is, as a sum of money that changes hands, from purchaser to seller. However, shells and metal coins have long since been withdrawn from circulation, money being ‘dematerialized’, as it consists in units of account issued as units of payment by banks.

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