A Koala Notes currency?

Can a city or state become a sovereign nation? We know what a sovereign nation is – one that has the capacity to issue its own currency and oblige its residents to pay their taxes in that currency. We also know that a state or city is thus not a sovereign nation because it uses the currency of the sovereign nation it “lives within”. So a state or a city is financially constrained in much the same way as a household. In that context, spending has to be financed either from higher taxes or debt issues which clearly places some limits on what programs a city or state can pursue. Further, a city can go bankrupt (become insolvent) in the local currency whereas a sovereign government cannot. So how might cities solve their infrastructure and social needs when they are so constrained?

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A simple personal calling card economy

Some readers have asked me to provide a simplified explanation of how the modern monetary economy works which is devoid of all the jargon that economists hide within. As part of another earlier blog, I did present a simple fiscal game which provides all the essential insights you require to understand how a modern monetary economy actually operates. Like all models it is stylisation. But there is nothing that I could add by way of complexity that would change the fundamental conclusions and understandings. So to make the model easier to find for reference purposes later on I an presenting it again as a stand-alone blog. Read on!

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