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The ECB as a Dealer of Last Resort from a Modern Monetary Theory Perspective

Author

Listed:
  • Dirk Ehnts

    (Steinbeis University
    Torrens University)

  • Michael Paetz

    (University of Hamburg)

Abstract

The Covid-19 pandemic has led to a renewed interest in monetary systems as public deficits and debts shot up. Modern Monetary Theory (MMT) provides a particularly well-suited toolbox for a monetary analysis that relies on a balance sheet approach. We discuss some basic concepts of a modern monetary system from an MMT perspective and analyse the specific institutional arrangements of the European Central Bank (ECB). Using the Wicksellian frameworks of a pure cash and a pure credit economy, we argue that the central bank is the natural “dealer of last resort” (DOLR) for the government, since the government is the natural currency issuer. Consequently, for the Euro Area (EA) to become a stable currency union, the goals of the ECB policy have to be extended. Instead of causing sovereign debt crises by refusing to provide currency to the governments of EA member states, the ECB should rule out the possibility of future debt crises by construction. It is already halfway there.

Suggested Citation

  • Dirk Ehnts & Michael Paetz, 2025. "The ECB as a Dealer of Last Resort from a Modern Monetary Theory Perspective," Springer Studies in the History of Economic Thought,, Springer.
    • Handle: RePEc:spr:spshcp:978-3-031-71511-2_6
    DOI: 10.1007/978-3-031-71511-2_6
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