Currencies Come and Go, But Employment Always Takes Root: Rethinking External Constraints and Monetary Sovereignty in the Periphery

Abstract

This paper explores a development strategy for peripheral economies by advocatingfor a paradigm shift from traditional economic models that rely on accumulatingforeign reserves. It proposes the job guarantee (JG) policy, an automatic stabilizer basedon a reserve pool of employed individuals, as a cornerstone for fostering sustainable andinclusive growth. Grounded in modern monetary theory (MMT), this study critiquesthe conventional approach that prioritizes external reserves and highlights the potentialof MMT in offering a more autonomous development path for developing countries. Asystematic review of the literature, using the PRISMA methodology, reveals significant divergencebetween MMT advocates and critics, particularly regarding monetary sovereigntyand the feasibility of implementing macroeconomic policies in peripheral economies. Thisstudy emphasizes that while external constraints remain, the MMT perspective calls forflexible exchange rates, low interest rates, and capital controls as part of a broader strategyto reduce dependency on foreign currencies. The proposed approach prioritizes full employment,the mobilization of domestic resources, and structural transformation throughpolicies like import substitution. Although the shift may involve the slower accumulationof capital, it offers a more equitable and stable development path. Ultimately, this analysisunderscores the potential of MMT to expand the external constraint and enable sustainabledevelopment, despite challenges in implementation and political resistance.