Difference between PoMo and MMT may principally be just Strategy

Having contributed to a paper which may even appear on the Positive Money (PoMo) website in due course, I wonder if I may at last be able to shed further light on where Sovereign Money Reform (SMR) differs from Modern Monetary Theory (MMT), (which I’d love to rename Sustainable Government Finance – I can hope!)

The first non difference is that Positive Money’s reform of Sovereign Money is the same Sovereign Currency that MMT talks about – both believe that a sovereign government with its own central bank and a floating exchange rate has a money that is its own and that only it can issue as ‘sovereign’.

Both also believe that governments can create money at will – subject to inflationary desires – or restraints.

Both also believe that most money is created by commercial banks in the form of loans. Yet although both are agreed that about 3% of money is either printed in notes or manufactured in coin, for some reason SMR seems to want to stick to 97% of all other money is created commercially- though since Quantitative Easing in 2007/8 this is clearly not the case and the Bank of England has caught up when it suggests a figure of 79%.

But of course MMT thinks that government creates new money every time it spends and government usually spends money equivalent to an amount in the high 30s in terms of percent of GDP – so this suggests that government creates still more of the money in existence. I normally settle for ‘most money is created by private banks’. But since Covid-19 I think that idea unlikely to last. There are vast amounts of QE bbeing created and, in addition, a situation where commercial bank lending is unlikely to hold up.

For some reason SMR likes to keep to the idea that although government can create money, taxes do pay for things- and so monies are recirculated from taxes.

Po Mo/SMR also rail against commercial banks creating money out of thin air with loans at interest and yet also admit that these loans are destroyed on repayment by dissapearing into their Bank of England reserves

MMT considers that money is destroyed when taxes are repaid, which is quite logical when you see that the same happens when private commercial banks are repaid their loan money, which is destroyed as we’ve seen.

Although SMR agrees that only governments issue banking licences, it is not happy for some reason with the idea that taxes control inflation and – in basic monetary terms – do nothing else. It absolutely seems to believe that taxes are there for governments to re-spend, too.

I find this idea pretty illogical – and cutting off your nose to spite your face. We are back to the scenario where we need the rich to pay for our hospitals, which is somewhere I don’t want to be – and to be fair nor do any PoMo/SMR supporters that I’ve heard from either.

It seems that their regard for the idea of full reserve banking is such a priority that perhaps this may cloud understanding of what the situation now is. The fact that it is admitted that governments can (and do, sotto voce) create money out of thin air, means they are well aware that it is possible but they still want to stick with the idea of recycling money, which has been originally, and is, even now, created at will…

Perhaps the most prominent difference between MMT and SMR is that MMTers say this is the way it works now – wake up and see it and don’t be misled by those that think otherwise.

PoMo and the SMR brigade think it is absolutely vital to reform. They mostly have this odd idea of a quango (unelected Monetary Policy/Creation committee anyone?) created money too. (Shouldn’t the government be in charge of that?) They seem then to choose not to accept a different – and I’d say more logical – view of the way the system now works.

Now for me. I suggest, we must absolutely walk before we run.

We can show how the monetary system currently works – by destroying the household analogy and embracing what is often called the MMT lens.

My opinion is let us get there first.

Because if we base our opinion on SMR reforms, even Fran Boait, chief of PoMo, is rumoured to think that banks might in due course go bust. I tend to agree – very certainly about the fear – if not necessarily, the fact.

And for banks, with their lobbying power and politician ‘purchase’ there is no way that substantial reform will arrive unless we have a politician who gives as much power to destroying the banks as Thatcher gave to destroying the unions.

That I consider, less than desirable.

So I’m afraid MMT against SMR ends up very much as first things, first.


  1. B. Gray -

    Regarding percent of government money in the economy, since 1980 and up to the 2008/09 Global Financial Crisis (GFC), government money (M0 – monetary base=bank reserves+currency+coin) represented about 8 to 12% of M2 money supply (M0/M2) in the US and 5 to 10% in the UK. That ratio went up dramatically in both the US and UK after the GFC due to the impact of QE as you stated. The link below shows 40 year history of M0/M2 ratio for US and UK based on data from the St. Louis Fed (FRED) and BoE. UK data in the FRED database only goes to the end of 2016.


    After the first round of QE in 2009, the M0/M2 ratio increased to just under 20%, and by 2014 M0/M2 peaked at about 35% in the US and just over 25% in the UK. U.S Federal Reserve has since unwound a large portion of its asset portfolio and the M0/M2 ratio dropped to about 22% in early 2020, which is more in line with UK. However, since the pandemic hit in March, the US is now back up to 28% as of June of this year. I imagine UK has seen similar increases resulting from the pandemic.

    Also, since the U.S. Fed from 2009 is controlling interest rates by paying interest directly on excess reserves, rather than relying on traditional monetary operations, these higher M0/M2 ratios are likely to be the norm for some time.

    Just thought you might find the actual data trends interesting.

    1. Peter May -

      Interesting – many thanks

  2. Neil Wilson -

    The MMT viewpoint explains why the Positive Money reform of banks does nothing of note.

    All it does is replace insured deposits with newly issued uninsured deposits of a different colour. It has no control function on banks any more than issuing Gilts has a control function on HM Treasury.

    All Positive Money suggestions do, and frankly the Basel 3 conditions, is raise the cost of money. The MMT condition that banks lend until they run out of creditworthy borrowers prepared to pay the current price of money remains.

    The way you control banks is on the asset side. You ban mortgages over 25 years in length for example.

    All very simple once you realise that banks are just pawnbrokers in shinier suits.

    1. Peter May -

      I don’t think PoMo think that their original proposals are achievable and the transition to the full reserve banking system would be very, very painful. That may be why they are more MMT orientated. MMT requires no changes just a different way of thinking.
      I also tend to think that they have used a sledgehammer to crack a nut. PoMo are very anti-interest (aren’t we all) but even now the BoE could just mandate or ‘direct’ for lower interest rates so that people didn’t have to pay 20% to borrow on a credit card, say.

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