Spend in euro denominated tax credits.

Central banks pay ecb rates on said deposits charged to issuer.


All perfectly legal under current institutional arrangements

32 Responses

  1. I had been wondering if state and local governments could do something similar, to avoid their current budget crunch. Issue local currency that is accepted as payment for local taxes ?

    Presumably there would have to be some kind of exchange where you could trade cash for tax credits ?

    1. @Dan Lynch,

      US states are bound by US Constitution, Article 1, Section 10:

      No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

      1. @WARREN MOSLER, I mentioned this approach to the Ranking Minority Member on the Budget Committee in the Maryland House of Delegates in a 5-10 minute conversation I had with him a while back and his eyes literally glazed over… oh well next time I see him I’ll try again as the state’s fiscal situation has not improved…

        BTW Warren I think you took it easy on Kudlow on the Boston radio show the other day 😉 Keep up the good work… Resp,

      2. @Tom Hickey,

        I’m no expert in this, but it does sound (ignoring all subsequent statutes and case law!) like state govts can issue freely transferable tax credits. (Unless tax liability falls under “Debt,” but the gold and silver thing has been ignored for quite some time.) Also sounds like local govts are free to issue local currencies (and tax credits), assuming no state restrictions? And of course, the ‘Hours’ movement and similar private scrip issuance indicate that local communities can do whatever they want: http://www.paulglover.org/hourintro.html

        “[Ithaca] HOURS are legal. Professor Lewis Solomon of George Washington University has written a book titled “Rethinking Our Centralized Monetary System: the Case for a System of Local Currencies” (Praeger, 1996) which is an extensive case law study of the legality of local currency. IRS and FED officials have been contacted by media, and repeatedly have said there is no prohibition of local currency, as long as it does not look like dollars, as long as denominations are at least $1.00 value, and if it is regarded as taxable income.”

        That last part is interesting from a chartalist perspective, as it inverts the normal direction of NFA creation. Of course, the UST is only going to accept USDs in payment of taxes, so at some point, Hour holders may find themselves subject to ‘exchange rate’ forces well beyond their control.

      1. @Warren,


        Lay out a plausible scenario of what would need to be done by the countries to make this operational. The specific legal and operational steps that would be necessary, both internally in the country of choice, and on the ECB side.

    2. @Dan Lynch,


      I think Ithaca might have been discussed here awhile back?

      It’s not clear from the article, and I haven’t read Paul Glover’s book, but I wonder what role local taxes play in these, if any? Might just be mutual commitment to exchange real goods and services (and extinguish a liability in at least one case) that supports their value?

      CA issued something sort of like a zero-interest short-term bill or note (this article also describes Depression-era forms of local scrip):


    1. @Crossover,

      They might not be. Yet at least sudden & growing interest in other options could be explored without the drastic penalties now attached.

    2. funded?

      first, worst case they go to balanced trade
      second, it’s up to those net exporting to you and their desire to accumulate your financial assets in exchange for their goods and services.

      1. @WARREN MOSLER,

        In terms of causality do you see the financial assets accumulating before the real foreign trade happens.

        Short of finding somebody going in the opposite direction, ISTM that you have to have somebody prepared to hold the financial assets before any real stuff gets shipped (even if that’s just a liquid forex market in your currency).

        The funding chain has to be in place.

      2. Don’t they have letters of credit in your world then?

        There is a reason shipping dried up after the crash. No letters of credit, no ship.

  2. Hey Warren,

    This is somewhat off-topic, but..

    Why don’t you purchase a billboard in Times Square and make it say something like MODERN MONETARY THEORY: Learn about it. Our country depends on it.

    etc. Or something like that. What would it cost? 5 million a year? I don’t know how wealthy you are, but if your wealth is in the 100 of millions, couldn’t you afford this just by earning interest on your wealth?

    I know I’m no one to tell you how to spend your money. Please don’t take this the wrong way. But what are you going to do with all your wealth anyway? Why not use it REALLY get MMT into the mainstream?

    Or maybe there are much less expensive ways to advertise MMT? Don’t get me wrong, I love the blogging that you and other MMTers do. The information is invaluable. But it seems like, with a lot of money, there are very easy ways to spread MMT.

    Either way, keep up the good work!

  3. Warren,

    “euro are accepted for tax payment by all the members. their own tax credits are good only in the country of issue for payment of taxes”

    Understood. That was my lame attempt at humor. It’s absurd that EMU members have forced themselves into needing measures like this. Domestic tax credits are an interesting idea for getting around eurozone structural flaws. How well has it been vetted at this point?

  4. And of course, the whole tax credit thing is a Rube Goldberg fix to monetary non-sovereignty. The EU should federalize. The U.S. should support the states. All these Byzantine work-arounds are either sad or hilarious, depending on your mood.

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