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So the last big issue we need to consider here is - is there an external constraint on government spending arising from the external sector - the trade and finance sector? Let's get some basics to start with. In MMT, exports are a cost and imports are a benefit, which is typically the opposite of the way we think about them.

The IMF is obsessed with export-led growth, and that just means that the economy is putting all its real resources onto boats and sending them to the benefits of foreigners and not being able to use them themselves.

In MMT, we acknowledge that if you're giving away your real resources to foreigners, that's a cost. And if the foreigners are willing to give their real resources in the form of imported goods and services, that's a benefit to you.

Why would you export under those circumstances?

Well, obviously, to make sure that you can get foreign currency so that you can buy imports that are necessary because not every economy produces everything.

Now, the goal of trade is consumption - to maximise out the benefits of consuming goods and services.

And so if we can persuade the rest of the world to send more things, goods and services on boats to us than we send to them, then we're actually doing better than others.

Now, the problem, in other words, running an external deficit is in consumption terms, beneficial. But the problem is that that can change very quickly. And the reason why the rest of the world would want to do that - put more things on ships to send than they get back - is because they want to increase financial claims denominated in your currency. Because when you're running an external deficit, the surplus nation relative to you are accumulating these claims in your currency.

Now, let's think about another dimension of this first, that's the exchange rate. It's just a relative price between currencies. The point is, if the exchange rate depreciates, imports become more expensive and exports become more attractive. We're not clear whether that improves a trade deficit or not. It probably does, but there are highly technical arguments about that.

But the issue about exchange rate depreciation is that imports become more expensive and we can import inflationary pressures from the rest of the world.

Now, the big debate is whether if a government runs fiscal deficits, does that predispose an economy to imported price inflation, which then has to be cut off by contractionary domestic products? Now, the research literature is quite clear.

There's no evidence linking exchange rate movements to fiscal policy positions - none at all.

And in general, the demand for your currency is not dependent upon whether the government's running a fiscal deficit or not, but on things like whether the nation has a strong rule of law, whether it's got a highly educated workforce, whether it's got a strong economy that's providing foreigners who want to invest in your economy with good returns.

Now Australia, for example, where I live mostly, is a small open economy that's been running consistent external deficits for years.

Our currency goes up and down but we don't have currency crises because we're a stable democracy with strong adherence to rule of law and contractual certainty, a highly educated workforce and we provide foreign investors with strong investment opportunities.

Now, the next question is, well, if foreigners are running surpluses against you, they're generating these financial claims, accumulating your currency in other words, isn't that bad? What are they going to do with it?

Well, if the economy is unregulated, they can engage, for example, in real estate speculation. Think about the Russian property ownership in London these days, and they can manipulate local assets with the currency that they have built up from running surpluses against you.

Now, that can be easily overcome if you have strong regulatory environment for foreign investment restrictions, just say that the foreigners can invest in certain things like crowd out like those from real estate markets. What else could they do with those accumulated local currency balances?

Well, I could sell them off in foreign exchange markets. In other words, convert it to the local dollars into their own currency. If they do that suddenly and in big volumes, they'll just make losses because they'll drive your currency down relative to theirs. And why would they do that? And sometimes, yes, there are speculative pressures on your own currency.

And in that case, a government has the legal authority to impose capital controls which restrict the cross-border flows of currencies. In other words, lock dollars into the local economy. And during the GFC, Iceland, for example, a tiny little volcanic rock had the biggest banking crash in the whole crises, and hedge funds then tried to destabilise their currency by shifting it out quickly. And the Icelandic government imposed capital controls and tied up that force stop them being able to convert their investments locally into foreign currencies and therefore they were able to stabilise their own currency. So in that context, in the extreme, a democratic government can impose capital controls.

Now, here are some qualifications. In general, protection of local industry and a restriction on imports damages consumers but there are reasons why you would want to place restrictions on trade.

One of them is the national defence argument. You want to have some manufacturing capacity to make sure you can build armaments and all of that, you know, and defend your society.

And the pandemic has taught us also that reliance on global supply chains for essential medical capacity may be flawed and that societies are building into more self-sustaining policy positions.

And the last thing that I'll say is about developing countries - the poorer countries. Now, a lot of critics say that all MMT isn't relevant to those countries because they haven't got any monetary sovereignty and I urge you to listen to the interviews with my colleagues Ndongo Sylla and Fadhel Kaboub, about that, who are experts on this question.

But in general, the point is this - that having your own currency, no matter whether you're a developing country or an advanced country, as we've learnt, means that the government can use that currency to bring all the available productive resources into full employment, into productive use.

The problem for developing countries is they might not have met very many available resources, which means that having your own currency doesn't make an economy materially rich. It just means what you've got, you can bring into full utilisation. But if you listen to those interviews, you'll learn much more about why MMT is relevant to advanced countries and the poorest countries in the world.

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