Welcome to Monetary System Analysis and Currency Theory

What is Sovereign Money?

Sovereign money is legal tender issued by a monetary authority, in most cases by a nation-state's independent central bank, or the ECB. The counterpart to sovereign money is commercial bankmoney, i.e. demand deposits on current bank account.
Bankmoney is created whenever a bank grants a loan, or overdraft, or buys stocks and bonds or real estate from nonbanks, and pays for this by crediting the customers' or sellers' accounts. These credits need to be backed by sovereign central-bank money, but just to a small percentage of 2.5% in the eurozone and about 1.5% in the UK and the US.
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Digital Currency
Maintaining or Overcoming the Bankmoney Regime?
Design principles that make the difference

Monetary reformers as well as central bankers are thinking about the introduction of sovereign money in the form of digital currency in coexistence with bankmoney. The paper linked to below discusses the advantages, problems and false problems of that approach and, most importantly, the design principles that decide on whether digital currency, rather than maintaining the present bankmoney regime, opens up the perspective of a gradual shift towards a sovereign money system.  

Sovereign Money in Critical Context

As sovereign-money reform has been gaining attention, more economists from various schools of thought have felt called upon to comment on it - mainstream commentators, Neoaustrians, demand-side Keynesians, and various strands of post-Keynesians. This provides an opportunity for clearing up misrepresentations of sovereign money. Continue > 

On Modern Money Theory (MMT)

At first glance, American MMT and the Monetary Systems Analysis and Sovereign Currency Theory as held on this site might look like close relatives, at least with regard to the analysis of the present money system. Don't be fooled. It turns out that MMT - despite its claim to be chartalist currency teaching - is closer to representing new banking doctrine. Regarding economic imbalances and public debt, MMT stands for a number of upside-down propositions making false promises. Continue >  

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The Chicago Plan and a Single-Circuit Sovereign-Money System

In dealing with monetary reform, a recollection of older concepts is quite natural. Most prominent are approaches to a 100%-reserve of the 1930s, among them the original Chicago Plan. There is now a tendency to identify this plan with the up-to-date approach to a single-circuit sovereign money system as championed by most contemporary reform initiatives. Is the Chicago Plan and '100% money' (Fisher) the same as plain sovereign money? Or is this about two different systems?
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Circuitism. Its monetary theory and model of the money circuit

Circuitism is a Frech-Italian monetary theory developed since the 1950s. It might be seen as an offspring of Neoclassical economics/Neomarxism and Postkeynesianism but in fact it stands for itself. Circuitism is certainly among the most advanced monetary theories today. Circuitists are clearly more pronounced than are Postkeynesians on the privileges and the power of banks. Regarding however the circulation of money from creation to redemption, wherefrom Circuitism has lent its name, the circuitist model of circulation looks rather, say, old-industrial. This may be changed. Continue reading >

How the present money system actually works

Here is a paper providing an up-to-date outline of the functioning of the present money system. This then serves as a backdrop to discuss a number of orthodox fallacies and heterodox flaws in money theory, followed by a summary of the dysfunctions of split-circuit reserve banking and a brief outlook on the perspective of a single-circuit sovereign money system. 
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Monetary Puzzlement
Why central banks perform worse than they could

Central banks are nowadays portrayed as the most mighty and powerful institutions, controlling the banking industry and exerting tremendous influence on financial markets and the economy beyond. Central banks themselves are keen to leave no doubt about their being in control of the situation. In actual fact, the decisive monetary power is with the banks. Here is an article that tries to sketch out what central banks actually can do and what they cannot.  


Negative Interest

The general level of interest is now persistently at or near the natural lower bound of 0% - and conventional monetary policy is paralysed. Some want to resort to desperado politics of some kind, for example, breaking the lower bound by imposing negative interest. The real meaning of that concept is poorly understood. In fact, it is a technocratic folly that is bound to fail, doing harm and no good. Continue reading why >

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How to account for sovereign money. The case for a currency register

Modern money is genuine fiat money in its own right. It does not refer to another monetary base such as formerly silver and gold. Thus, the current practice of accounting for notes and money-on-account as a liability of the money creator has become inadequate and misleading with regard to the alleged credit-and-debt nature of money. Central banks ought to account for money as a liquid asset only, not as a liability. This can be implemented by connecting the central-bank balance sheet to an upstream currency register of the central bank. 
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The euro - Whence it came, where it goes

The euro was expected to catalyse 'ever deeper union' among its member states. Instead, the euro has been captured by bad financial habits of old and has put the euro north and south in fierce neonationalist confrontation with each other. The currency union is now at the crossroads between either getting stuck in the mud of an ever deeper joint liability community bound to continual decline, or a reset of the euro and realignment of the Eurosystem based on a return to the no-bailout rule, national responsibility for national debt, and a number of rule changes in the Eurosystem (TARGET payment balances, voting rights).  

Currency and Banking Teachings

Currency versus banking teachings represent a frame of reference of lasting relevance to modern money systems.
The expression New Currency Theory (NCT) makes reference to the historical Currency School of the first half of the 19th century. It was opposed by the Banking School of the time.
Most economists seem to have forgotten about this controversy. At the same time, most monetary reform initiatives today in fact stand for new currency teachings...
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Neo-Austrians between Gold Standard, 100% Reserve, and Free Banking

The Neo-Austrian School and New Currency Theory share a similar criticism of fractional reserve banking. Strangely enough, Neo-Austrians blame the problem on government and central banks rather than the banking industry.
The Neo-Austrian idea of money and banking reform then is free banking, i.e. a system without legal-tender laws and central banks, on the basis of a return to a 100% gold reserve. This appears to be quixotic, but is a revelation to others.
Here are > Notes on the occasion of reading Huerta de Soto, a main proponent of the Neo-Austrian School.

A comprehensive analysis of the monetary system and layout of monetary reform.

Print edition and
e-book available from
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► Palgrave  

Mackenzie King 1945. Photo: National Archives of Canada

Mackenzie King 1945. Photo: National Archives of Canada

'Once a nation parts with the control of its currency and credit, it matters not who makes the nation's laws. ... Until the control of the issue of currency and credit is restored to government and recognized as its most sacred responsibility, all talk of the sovereignty of parliament and of democracy is idle and futile.'
W. L. Mackenzie King, Canadian Prime Minister 1935-1948

'For the government to permit banks to issue money, borrow that money, and pay interest on it is idiotic.' 
William F. Hixson, concluding remark of his talk at the AMI Monetary Reform Conference, 2005.