Debt-free sovereign money is now here. How come?
Because the Covid crisis has demonstrated its feasibility.
During the Covid crisis, many holders of government debt, such as mutual funds, foreign central banks, and hedge funds, had to sell their bonds to cover huge withdrawals by their own investors.
Central banks like the US Fed and the UK Bank of England intervened by purchasing their government’s bonds to hold up their price in order to keep yields down. Purchases cumulated to >$2 tn in the US and £875 bn in the UK.
As an unintended consequence, central banks now hold substantial government debt. Sure, the government has to pay interest to the central bank, and must ultimately redeem the debt, but this is one government agency in debt to another, ie it’s a zero sum game. It equates to debt-free sovereign money.
So the challenge now is why not issue debt-free sovereign money directly to fund basic income and the reversal of austerity cuts? This proposal is similar to Modern Money Theory, but differs from MMT by the important distinction that money should be created debt-free.