Episode 40 – The Spectrum of Monetary Sovereignty in Developing Nations with Ndongo Samba Sylla and Fadhel Kaboub

Macro N Cheese – Episode 40
The Spectrum of Monetary Sovereignty in Developing Nations with Ndongo Samba Sylla and Fadhel Kaboub
November 2, 2019

Ndongo Samba Sylla [intro/music] (00:03):

I will say that whenever you see the IMF (International Monetary Fund) in a given country, that is a clear indication that this country is not monetarily sovereign because you would never see the IMF discussing with countries with, let’s say, full monetary sovereignty.

Fadhel Kaboub [intro/music] (00:22):

The MMT lens allows us to think about the root causes and think about solutions that target those root causes as opposed to temporary band-aid solutions.

Geoff Ginter [intro/music] (01:26):

Now let’s see if we can avoid the apocalypse altogether. Here’s another episode of Macro N Cheese with your host, Steve Grumbine.

Steve Grumbine (01:34):

Yes, and this is Steve with Real Progressives and Macro N Cheese. Today, we have a show – we have two experts coming on: Ndongo Samba Sylla and Fadhel Kaboub. Dr. Ndongo Samba Sylla is a Senegalese development economist. He has previously worked as a technical advisor at the presidency of the Republic of Senegal.

He is currently a Senior Research and Program Manager at the West Africa office of the Rosa Luxemburg Foundation in Dakar. He has been a four-time world champion of French-speaking Scrabble. His publications cover topics such as fair trade, labor markets in developing countries, social movements, democratic theory, economic and monetary sovereignty. And he tweets at @nsSylla.

And Dr. Fadhel Kaboub is an Associate Professor of Economics at Denison and President of the Global Institute for Sustainable Prosperity. Before settling at Denison in 2008, he taught at Simon’s Rock College of Bard (Bard College at Simon’s Rock), and Drew University, where he also directed the Wall Street Semester program in New York City.

He held research affiliations with the Levy Economics Institute, the Economic Research Forum, the John F. Kennedy School of Government at Harvard University and the Center for Full Employment and Price Stability. He is an expert on Modern Monetary Theory, the Job Guarantee and the Green New Deal. He tweets at @FadhelKaboub and @GISP_tweets. And with that, welcome everybody. Thank you so much for taking the time to join us at Macro N Cheese.

Kaboub (03:16):

Thank you for having us on the show.

Sylla (03:18):

Thank you for the invitation.

Grumbine (03:20):

Absolutely. Alright. So first things first. We want to talk about developing nations, developing economies. Modern Monetary Theory is often critiqued for only being a US phenomenon. They don’t typically realize that Modern Monetary Theory is a description that can satisfy the needs of the many, not just in the United States.

Can we start off first of all, with you, Ndongo in explaining how this impacts your area of expertise in the area of the world that you live and kind of give us a setting for how Modern Monetary Theory could impact Senegal.

Sylla (04:06):

Yeah. In fact, Modern Monetary Theory from my own perspective has been helpful in understanding, let’s say, the limitations of the currency we use in my country named the CFA Franc, because the CFA Franc is common to 14 countries in Africa, West Africa, and Central Africa. And it’s a currency born during colonial times.

And among the, let’s say, the researchers and activists who want to get rid of this currency and Modern Monetary Theory has been very helpful to that end. Why? Because the first thing is that Modern Monetary Theory provides a geneology of modern money. That is how modern money has been created. And if you look at the story of the CFA Franc, for me, it’s an interesting proof of the validity of the capitalist approach to money.

For example, during colonial times the colonial powers, they impose their currency to have access to resources in the colonies. They did not need to use taxes to fund their spending, but they impose taxes in order to generate a demand for their currency. And that means that the taxes were a strong element in creating the need for holding the colonial currency. And this is indicated by the story of the CFA Franc.

So that is one aspect of MMT, which is helpful, really helpful to understand how the CFA Franc, in what context it was born and why the colonial power did not need the taxes, let’s say, to spend. That is something interesting. The other thing is that Modern Monetary Theory is also a macroeconomic theory.

So it could be helpful in discussing, let’s say, the shortcomings of monetary unions, because in the capitalist perspective, you could not really separate, let’s say, money from fiscal operations. In the CFA Franc zones we have exactly this separation between the monetary instrument and the fiscal instrument.

And you see all the criticisms that, let’s say, some MMTers have been making towards the European Union, somehow we could apply them to the CFA Franc. So to be brief, if I just say these two aspects of the origins of the currency and the limitations of currency zones, where the fiscal operations and the monetary instrument are separated, you can have very, very interesting insights from MMT.

Grumbine (07:17):

Thank you very much. And Fadhel, let me ask you – taking this to you now. In countries beyond Senegal where they’re not in just monetary unions, perhaps they have very limited capacity for production. Can you describe a typical developing economy? What the lay of the land is? What are they facing?

Kaboub (07:41):

Sure. A useful place to start this conversation is to remind our listeners what monetary sovereignty means from an MMT perspective. And this will also help us understand how limited the situation is for countries in the CFA zone, for example. So monetary sovereignty from an MMT perspective, we often talk about the spectrum of monetary sovereignty. So not all countries are equally sovereign when it comes to monetary sovereignty.

A lot of people confuse this with political sovereignty. So you have independence and you have your own government and so on. They have political, you know, independence, but as we’ll see, political independence is also limited when you don’t have full monetary sovereignty.

So countries that enjoy full monetary sovereignty are countries who can issue their own currency, their national currency, tax the population in their national currency, can issue debt denominated in the national currency and only in the national currency. In other words, they don’t borrow and promise to pay back in a foreign currency.

And then number four, it’s countries who don’t fix their exchange rate to gold or any other foreign currency. Countries in that category would be the US, the UK, Canada, Australia, Japan, and so on. On the other extreme end of the spectrum would be countries that have completely given up their national currency. You can think of Ecuador and El Salvador – countries that dollarized.

You can also think of countries that joined a currency union and have completely given up their monetary sovereignty for a variety of reasons. Obviously the CFA zone countries didn’t choose that – it was imposed during colonial times and persists to this day. You can also think of the Eurozone countries who opted to give up their monetary sovereignty, joined the Eurozone.

So we can talk about those countries, but most developing countries are kind of in between on that spectrum of monetary sovereignty. And the reason for this is because they… It’s a combination of two factors. One is, you know, large amount of external debt denominated in foreign currencies, combined with fixed exchange rates that many countries, developing countries, use. If it’s not exactly fixed, it’s really managed around a particular boundary.

So you can think of it as quasi-fixed exchange rate. And the reason why countries end up in that situation as you alluded to earlier, is because of some real structural economic deficiencies that they have. And to think of these deficiencies, you can put them in three major categories. One is a large amount of food imports.

So we’re thinking here in terms of a lack of food sovereignty, in a way. The second deficiency is a huge amount of energy imports – oil in particular, fossil fuels. So you can think of it in terms of lack of energy sovereignty. And then the third component is much more structural in terms of the industrialization process that most developing countries have undertaken, which is a mismatch between the value-added content of their exports and the value-added content of their imports.

The most developing countries you notice will import high-value added content, machinery, and advanced technology and components, parts that will be assembled in a production process. And they export low value-added content. So think of an assembly line type of industrialization. So because of these three weaknesses, you end up with large trade deficits, and you end up with a situation where there’s downward pressure on the exchange rate of those developing countries.

And if they allow the exchange rate to depreciate, and they’re so dependent on food imports, energy imports and medical equipment imports and so on, a devalued currency means everything you import after that will be more expensive in real terms, which means those countries will be importing inflation. And when you’re talking about sensitive areas of the economy, like food and energy and medical resources, that can immediately turn into social unrest and political unrest.

We sort of see this as we speak in Lebanon and Chile and other parts of the world. And this is not the first time, obviously. We’ve seen this over the decades with food riots in many parts of the developing world, especially in the 1980s during the developing countries’ debt crisis. So these are really the major weaknesses, and the MMT lens allows us to think about the root causes and think about solutions that target those root causes as opposed to temporary band-aid solutions.

Grumbine (12:27):

Absolutely. So with you two, I guess my question is, you know, we see the neoliberal paradigm of groups such as the IMF that go into these areas and extract wealth while these groups are literally hamstrung and incapable of responding because of the very debt and the lack of monetary sovereignty. Perhaps I’d like to see if you two can build upon that.

I understand many that follow Macro N Cheese are of great concern about issues like the IMF and the impact that the US dollar has on their sovereignty and their ability to make quality decisions for the real resources in the ground, the real resources of their labor and the real resources of their output. Can you discuss a little bit about the powerful nature of the outside world pressing down on these groups and how maybe we can overcome that?

Kaboub (13:26):

So maybe we should start with a little bit of history about the IMF, because it plays such a crucial role today for developing countries in terms of managing their exchange rates and imposing, you know, structural adjustment programs when they offer loans to developing countries. Let’s remember the IMF was created at the Bretton Woods Conference in 1945, which was during the last few months of World War II and it was very clear that the US is emerging as the global superpower displacing the UK at the time.

And the challenge at the time was just try to figure out a way to stabilize the international financial system and avoid some of the conflicts that were taking place in Europe, in particular, in between the two wars – between World War I and World War II.

And those issues we’re kind of experiencing at least now in rhetoric, which are currency wars. So one of the things that was happening at the time was, you know, a country would devalue its currency artificially in order to make its exports cheaper.

So France, for example, would devalue and make it exports cheaper. So it will have a trade surplus with Germany and then Germany will retaliate and would lower its exchange rate even more to counterattack the French devaluation. Italians will do the same and the British will do the same. So it was a very counterproductive kind of system.

And nobody was winning from that, and some would argue, this was one of the components that led to World War II, actually. So the IMF was created at the Bretton Woods System to avoid having these competitive devaluations, these currency wars and these trade wars. But it’s very important to note here that in 1945, when the allies were setting up the global financial system with the creation of the World Bank and the IMF, there were no developing countries at the time.

There were colonies. So they were not invited to the table and their economic concerns, their structural capabilities, were not discussed at the meeting. So it was really designed to serve the interest of the Western world, but then these problems started to emerge. As soon as we see developing countries becoming independent in the fifties and sixties – and then we realized the structural weaknesses and structural deficiencies between the developed world and the newly independent countries.

So that’s a little bit of history, just so we know that structurally this game was not set up to serve the purpose of economic development. Point number 2, to add to this discussion is that from an MMT perspective, this idea that, you know, the obsession with surpluses, you know, government surpluses, budget surpluses, and it translates also to trade services. MMT tends to focus on the real side of economic activity, the real resources.

So when a country is exporting goods or services, it’s dedicating its human capital resources, technological resources, raw material resources to produce something that its population is not going to enjoy, is not going to consume. So it’s selling that abroad and it’s the receiving country that will benefit from that particular good that’s being produced, and that will actually consume it.

So it’s very important when you’re looking at exports and imports, when you’re looking at trade surpluses and trade deficits, to think of the quality and the content of that surplus or that deficit, and not just the quantity or the monetary value. Which means as a nation, maybe you should be focused on being a little bit more selective in terms of not just what you import, but also what you export so that your focus is quality of life.

Your focus is environmental concerns. Your focus is, you know, the real benefits that your economy, that your society is deriving from that international trade, as opposed to very kind of narrow, simplistic understanding of trade deficits in pure monetary terms, because that will change the terms of your economic policy direction – if you start focusing on what the deficit actually means in real terms.

So that being said, as I described earlier, developing countries end up with these structural trade deficits, which puts downward pressure on their exchange rate, and that forces them into a situation where they either have to let go of the fixed exchange rate policy and then suffer the consequences of food inflation and energy transportation inflation, and all kinds of potential social and political unrest, or if they want to avoid that, they end up borrowing in foreign currencies dollars, or Euros, or British pounds or whatever in order to stabilize the exchange rate.

And because these structural deficiencies are long term deficiencies, so this ends up accumulating a large amount of external debt year after year after year. And that external debt comes either from investors, private investors, or from international financial institutions, like the IMF and, you know, borrowing in foreign currencies is limited, limited by the willingness of the lenders to lend you more. And when you reach a certain level of external debt, that raises the risk of default.

So the interest on your debt will start to rise. And at some point you will not find any investors willing to buy your debt, which means you can lose control over the exchange rates, which means you’re a few days away from riots on the streets. And that’s typically where you find countries ending up with going to the IMF and asking for financial assistance to stop the political or social unrest and the economic crisis. And those loans come with conditionalities.

And the conditionalities basically are focused on getting that particular country to generate more dollar revenues to pay its debt, its external debt. And those policy prescriptions can be summarized probably in five points, five general points. One is, you know, try to export more to accelerate your exports. So do whatever it takes domestically to encourage exports.

So give a special treatment to companies that export. You know, weaken labor unions, weaken labor laws, weaken environmental laws to allow export-oriented industries, to quote, unquote “thrive” at the expense of workers and the environment. Number two, foreign direct investment to attracting foreign companies to relocate say from the US or the UK or other places to a developing country.

And, you know, typically in order to do that, you end up building the infrastructure for them, building the so-called FTZs – Free Trade Zones, -which requires some legal adjustment, typically that allows those areas, Free Trade Zones, to be kind of a country of their own in terms of labor laws, environmental laws. So the country builds that infrastructure typically subsidizes electricity production and water resources for the industries that will relocate there. In many cases, labor laws are weakened.

Environmental laws are weakened. You know, tax exemptions are also offered. A lot of benefits are given to companies to relocate there. And you have to realize that there’s dozens of developing countries trying to do this at the same time. So this is what we call the “race to the bottom” where you’re offering these foreign companies so many advantages just to get them to relocate to your country.

And the problem with this, when you’re racing to the bottom with lower wages and lower standards, you end up attracting the lowest value-added content assembly line type of investment, as opposed to the higher-end advanced technologies the developed world typically attracts. So, you know, foreign direct investment doesn’t really work.

And then by the way, the more you accelerate exports, the more you accelerate for indirect investment, the more energy you end up consuming. So we import more fossil fuels to fuel the economy. So that puts downward pressure on the exchange rate as well because you’re producing a lot of electricity for manufacturing and shipping and transportation.

So that’s an additional burden. And then the more you accelerate this type of low value-added industrialization, the more high value-added content you have to import, you have to import all the components. You have to import the technology. So it looks like a solution, but it has this big problem hidden within it that we’ve seen unfold over the last few decades.

Number three, they tell you try to attract tourists. Tourism brings dollars. So it helps you pay the external debt. Same problem. It looks like a reasonable solution, but has this big problem hidden in it. When you’re bringing millions of tourists, you have to, you know, build the infrastructure for hotels, which is often subsidized by the government, subsidized water and electricity, and the more tourists you bring, the more food you have to import to feed the tourists, obviously.

And the more tourists you have, the more energy you have to import for heating and cooling and transportation and all of that. So again, it ends up being a trap in the long term. Number four, they tell you, well, you have this electricity company that the government owns. You can sell it. You have the water company, you can sell, you have the telecom company.

So all of these state owned enterprises are often put on the chopping board. Again, it offers a temporary relief because you’re selling the airport for, you know, $300 million or whatever, and use the money in two years and then you’re back to square one, but you can’t privatize it again. And it’s only a one off deal and many countries have already done that.

So really hitting the tail end of that privatization of state-owned enterprises. Number five, they tell you, well, maybe you can set up a little, you know, financial market, mini Wall Street to attract foreign investors. And when you think about it, why would any investor go to a developing country’s financial market, as opposed to London, Tokyo, or New York City. So to attract them away from New York, London, and Tokyo, you have to offer them artificial higher returns.

So the central bank will typically raise interest rates to, you know, prioritize fighting inflation. The central bank, or the government in general will offer lower levels of regulations compared to New York and London and other places. They would also offer you lower a capital gain tax or tax exemptions.

So when you do these things and you create artificially higher returns, the top investors that you’re bringing to your financial market are going to be speculators because they’re the ones interested in buying low and selling high, and they’re not interested in regulations, right? So at first you have this, what we call the “hot money effect.”

At first, when you do that, you get a lot of money coming in and the stock market starts booming and the banking system is thriving. And everybody says, “Oh, this is great,” we’re making it into the next step of economic development and prosperity. But then as soon as the market reaches, what speculators think is high enough, that’s what they do – they buy low and they sell high.

They sell and they all sell at the same time and they take their money and leave. And that leads to a stock market crash. It leads to a currency crash. And typically those countries would experience a recession that lasts about a decade. We’ve seen this in Mexico and Brazil and Turkey and South Africa and Korea, all the emerging markets, that tried this, ended up attracting all the speculators.

Then it took them literally a decade to recover from this effect. So this is not a solution. All of these are temporary band-aids. And this is really the most depressing thing about this exercise – the developing countries have been forced into is that this was always the kind of the mainstream economics advice. The IMF prescription is always about these, you know, typical solutions and every country tried them at least for a few decades.

And we still see the same prescription today. Like we never learned from these things. And every time they bring these prescriptions, they try it one more time. It’s as if they’re saying, we’ll try it a little harder this time and maybe it will work. So the mainstream doesn’t really have any answers or any solutions to the problems that developing countries deal with.

Whereas MMT offers this other lens. Now I should highlight that the IMF is also not just a financial institution. It’s a geopolitical institution as well. We have to realize that the US has a veto power in the IMF. So when it comes to who is running US foreign policy, in other words, the presidency of the United States.

It can shift the direction and the priorities and the mandate of what the IMF is doing internationally. Same thing with the World Bank. So these are things that we need to keep in mind that it’s not just technical economic solutions. There’s power and influence that also uses the influence of the United States – economic interest of the United States – and geopolitical context.

Intermission (27:46):

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Sylla (28:32):

I will say that whenever you see the IMF in a given country, that is a clear indication that this country is not monetarily sovereign. Because you would never see the IMF discussing with countries with, let’s say, full monetary sovereignty. Because in the global South, the IMF is always present when countries have difficulties regarding their external payments.

So the IMF is there to tell them, we’ll provide you loans, but you have to pay those loans provided that you obey some standard prescriptions like those well described by Fadhel. And that means that the IMF, usually deals only with countries that are not monetarily sovereign.

People have been surprised to see, for example, the IMF intervening in some Eurozone countries like Greece, Portugal, et cetera, because with the Eurozone, those countries more or less have surrendered their monetary sovereignty. And so the thing is that if countries want to, I say, countries from the global South, they want to develop, they have to work towards achieving more monetary sovereignty.

And that means, as Fadhel said, that they have to solve more or less their external problem, because those countries, they are obliged to be conducted in foreign currencies. Why? Because they have trade deficits, generally. If they don’t have trade deficits, their trade balance is generally very volatile, because they are only exporting commodity products. And the prices of those commodity products are very volatile.

And that means that whenever there are good prices for the commodities, that trade balance is in surplus. Whenever the prices of the commodities are low, they have huge, let’s say, external payments problems.

And the IMF comes in. And there is also the fact that as those countries are not really sovereign on their own resources, I mean, for example, their lands, their natural resources, oil, gas, minerals, et cetera, there are often let’s say powerful multinational corporations, which are, let’s say exploiting those resources.

And as a result of this exploitation, they are sending abroad huge amounts of money. And when you take those profit exportations and the interest payment of debt, you see that those countries could not, let’s say, cope with this prime external constraint because they have to have the foreign currency to allow those foreign payments repatriations and also the payment of the interest on debt.

And the IMF is generally there to say that we are going to make sure that you will pay the interest on debt and you will, we will make sure that those who want to repatriate their profits will have the adequate, let’s say, foreign exchange reserves. And that’s the rule of the IMF.

And that means that the type of challenge we have in, let’s say, Africa and other parts of the global South, are not really in the monetary sector, but rather in the real sector, that means our countries have to have a, let’s say, more sovereignty on the management of their resources. For example, in Africa, we have lands, we have manpower.

We have also ancestral knowledge about how to develop agriculture in an ecological friendly way. But yeah, currently people are still in the older colonial system. That means that you will specialize on those agricultural products which will give you foreign exchange reserves, but not for example, on agricultural products which will help feed your own population.

And for your own food, you will have to import it – to import that food with the money coming from the exports of the product – of the commodity products. And that means that there is a pattern of economic specialization, which we have to transform. And that is the point. But with the IMF, the World Bank, they are not interested in that.

They are not interested in structural transformation. And they are against, let’s say, any attempt for countries of the global South to achieve a, let’s say, more monetary sovereignty. And when we use an MMT perspective, we could see, as Fadhel said earlier, what are the, let’s say, right steps towards addressing, let’s say, those financial issues, but also those issues from the real economic sector.

Grumbine (33:55):

Now that’s very powerful Ndongo. I want to ask a question for both of you. And I think this is really, really an important thing for people that are trying to understand better, not only just MMT as a whole, but really the application in developing economies. We frequently hear about hyperinflation. We’re oftentimes pointed to Zimbabwe and Venezuela and Weimar Germany.

But in particular, I look at Zimbabwe as kind of a model here where this is always thrown at us as, “See, this is what MMT gives you.” And in reality, based on what you just said, Ndongo, in particular about managing the resources and the productive capacity and the monetary sovereignty there within, it seems like this is a really important thing to understand how a hyperinflation scenario occurs in these developing nations. Would you like to explain that?

Sylla (34:55):

Yeah. If you see all this thing about, if hyperinflation is today, you don’t have to innovate, you don’t have to transform your economics because let’s just look at the data. You see, since the 20th century, according to the best works done until now, there has been for the whole world, just 60 episodes of hyperinflation in the world.

And if you take the case of Africa, this happened, I think, for just four countries like Zimbabwe, Angola and Democratic Republic of Congo, you see, and wherever they had been episodes of hyperinflation, it was during wartime because productive capacities had been dismantled – totally dismantled. If you take, for example, the new episode of hyperinflation in Zimbabwe, it’s because the economy is completely broken.

There is no longer any productive capacities to support, let’s say, the issuing of a national currency in Zimbabwe, and Zimbabwe also is facing financial sanctions from the likes of the IMF, World Bank, the US, et cetera. So that means that hyperinflation is something really, really, really let’s say, unlikely event, even in Africa. The poorest countries in the world are in Africa, and, let’s say, less well-managed currencies are in Africa.

And yet you see that hyperinflation has been something really uncommon, something you could not see generally in African countries. So people has to stop with this idea of hyperinflation. And in the case even of Zimbabwe, the hyperinflation has nothing to do, let’s say, with, as people say, printing a lot of money. Of course they have printed so-called lot of money.

But the main reason for that is that the productive capacities have been dismantled, and MMT is not about so-called printing money. And whenever we do that, we’ve done accommodating monetary and banking system. Yeah. Things will work, but the thing about hyperinflation is not scientific at all. It’s just a way of saying that, never innovate, just, just maintain the consensus and just stick to what the IMF and the World Bank say.

Grumbine (37:28):

Fadhel, what are your thoughts on hyperinflation?

Kaboub (37:31):

So I will reemphasize what Ndongo just said about the fact that hyperinflation is extremely uncommon, and that it does happen in cases where you have a complete breakdown of the economic productive capacity system. It happens in times of wars and political turmoil and so on. But also this myth of printing money and hyperinflation that, let’s acknowledge, this is the mainstream perspective, right?

And the burden of proof is on the mainstream to give a better explanation for hyperinflations or inflations to begin with. So just the last 10 years, since the global financial crisis in 2008, all central banks, the major central banks, the US Fed, the Bank of Japan, European Central Bank, and so on. All of these central banks have set publicly set a target of inflation at 2%, because they were trying to avoid deflation after the crisis.

And they tried every trick in the book from a mainstream perspective to do whatever it takes to hit that inflation target, to create inflation. Japan has been trying this for decades now, and they all failed miserably because their theoretical understanding of what causes inflation is not correct. And this is what MMT has been saying all along.

So now 10 years later, we all realize that, you know, their theory of inflation doesn’t work. Even the Fed acknowledged that. They said we have no valid theory of inflation, right? So they acknowledge that their theory of inflation doesn’t work. And yet, somehow they still hold onto this belief that, you know, MMT will cause hyperinflation – that government spending and government deficit will cause hyperinflation. Number one, they don’t really have the MMT lens to distinguish between countries on that spectrum of monetary sovereignty.

So you hear people, you know, even recently discussing, you know, the external debt of, you know, the national debt of Japan and compare that debt to Greece or comparing it to Lebanon or other countries, which is nonsensical to compare a country with full monetary sovereignty with all of its national debt denominated in the national currency, and compare that to a country that has a large amount of external debt denominated in foreign currencies.

So that’s number one. Number two, in terms of what causes inflation from an MMT perspective, both in developed and developing countries. And we’ll see that this is even more acute in developing countries. Number one is, as we’ve discussed, is the productive capacity.

So with shortage of productive capacity – and it’s not necessarily overall productive capacity, sometimes it’s limited to particular areas of the economy like food production, or energy production, or healthcare production, or whatever particular industry where you have shortages and you have demand that exceeds the productive capacity of the economy.

The second component of inflation that can also lead to hyperinflation is market power within particular industries, where you have price setters that take advantage of their monopoly, or semi-monopoly power and take advantage of panics and crisis and shortages to raise prices. But then when the shortages disappear, they never lower the prices back to the initial level.

And in the case of developing countries, this is often also overlapped with actual power as in police and military and customs officers. So corruption in that system helps strengthen the power of particular key players that can set prices. Sometimes that power is given and licensed by the government. So I’ll give you an example.

Most developing countries would give a particular import license, exclusive license, to an individual or a company or a small group of individuals to be the exclusive importers of wheat, the exclusive importers of rice, the exclusive importers of gasoline. And that gives them exclusive power. And those licenses are not often given in a competitive, democratic, transparent process.

So again, the issue of corruption and power is critical to understanding how inflation takes place and especially in developing countries. So from an MMT perspective, if we were trying to deal with the inflationary problem at the source, number one, you increase the productive capacity as much as possible.

So you invest in developing that productive capacity. You use your physical resources in the most effective way to maximize productive capacity. Number two – and this is also an important feature of the MMT framework – use taxation and regulation, not to raise revenues for the government because raising revenues doesn’t solve the inflationary problem per se, but you use taxation to reduce the power and influence of particular individuals within the country that causes that inflationary pressure.

And regulation includes, you know, more transparency, includes fighting corruption. In other words, you weaken the market power, the price-setting capability of key players that need to be identified. And the problem with this policy is that you really have to have a government that has a clear vision, that’s not corrupt, and that’s willing to take on the big power players.

In some cases, this leads to direct confrontation with key players because in some countries, this involves trafficking across borders. So there is a national security element to it. And that’s why frequently you find police and military and customs officers involved in the trafficking process and the price-setting process and the inflationary process, and the more of the shortages and panic you have, especially about food and gasoline and medicine, the more influence they have in the process.

Sylla (43:35):

I totally agree with what Fadhel just said. I would even be bold enough to say that hyperinflation is never a monetary phenomenon. I will say that every time you have hyperinflation, it’s a geopolitical phenomenon because countries which ordinarily experience hyperinflation are countries which the world let down.

That means countries being in wartime situation or countries facing, let’s say, sanctions, economic sanctions, et cetera. So for me, the connection even between inflation and hyperinflation is not something automatic because you see that even in the literature that factors explaining inflation are not the same factors, which would explain hyperinflation.

Those are two different phenomena – inflation and hyperinflation. And whenever you have hyperinflation, it’s something of a geopolitical nature, and monetary aspects – so-called printing money – for me is the most superficial aspect of the phenomenon.

Grumbine (44:44):

Fantastic. Great explanation, Ndongo. You two are both involved in something that I’m really excited about and I want to give you an opportunity to talk about that. And that’s this Monetary Sovereignty Africa Conference that you all will be putting on there shortly. And what I’d like to do, I believe it’s a sixth, seventh, eighth, and 9th of November in Tunisia. Can you all talk a little bit about how this came to be and give the particulars of it?

Sylla (45:13):

Yeah. Let’s say that through this conference, we want to participate in the global discussion on, let’s say, monetary issues and special topic of monetary sovereignty, because we see that in Africa, there have been some, let’s say, during the last four or five years, some movements – social movements – asking for the abolition of the CFA Franc, the so-called colonial currency circulating in 14 African countries. Yeah.

At the same time, we have seen that there are countries in North Africa, like Tunisia, which have their own currency, but they more or less face some forms of external instability because, yeah, their currencies are depreciating despite the fact that they have formal political monetary sovereignty.

In the Eurozone, we have seen also there have been strong discussions about monetary sovereignty in, let’s say, the peripheral countries like Italy, Portugal, Greece, because we see that the Eurozone was not designed for such countries and there are inside those peripheral countries movements saying that they have to break up with the Eurozone to achieve more monetary sovereignty.

And the US we have of course seen achievements made by the modern monetary movement and also its growing political resonance, et cetera. And in this context, we wanted to have a conference, an international conference, which would gather all these discussions coming from everywhere around the world. And to see in the particular context of Africa, what we can do to achieve more economic and monetary sovereignty.

And this conference, will gather, let’s say, people, from MMT, let’s say, using MMT perspective – there’ll be as a kind of post-Keynesians, Marxists, political scientists, historians, et cetera. But the purpose is to say how could we build for all the current discussions to try to reflect on the African case? That means for the whole continent and North Africa, Sub-Saharan Africa, what we can do to achieve more economic and monetary sovereignty?

What kind of strategies could we elaborate so that we can deal with the kind of financial dependency we see – growing indebtedness of African countries? What can we do to create better, let’s say, monetary arrangement so that we could aspire to full employment policies?

Kaboub (48:08):

Sure. So we’re hosting this conference in Tunisia on November 6, 7, 8, and 9, in Tunis. And the conference is called The Quest for Economic and Monetary Sovereignty in 21st Century Africa: Lessons to be Learned and Ways Forward. People can actually watch and listen to the conference online. The website for the conferences, MES-Africa.org. Again, it’s M E S hyphen Africa dot org. And there’ll be live streaming, both in English and in French.

There’ll be live translation so people can watch whichever language they’re comfortable with and people can follow us on Twitter. The Twitter handle is @MON_sovereignty, M O N as in money. So it’s at M O N underscore sovereignty, and there’ll be live tweeting as well. So a little bit about the context for the conference.

I was brought into this conversation about this conference maybe a year and a half, maybe two years ago, but Ndongo was involved in kind of thinking about this conference maybe for a little longer. So the conference is hosted by the Rosa Luxemburg Foundation, the North Africa office, which is based in Tunis. And as you know, Ndongo is part of the Rosa Luxemburg Foundation office in Dakar, in Senegal. So sort of a joint conference with the two offices of the Rosa Luxemburg Foundation.

And the idea was really to invite academics, policy makers, the media and grassroots organizations in developing countries and Africa in particular, to think about the process of economic development from a monetary sovereignty lens, because everybody acknowledges that the mainstream perspective, the IMF prescriptions, have not achieved any of the, you know, presumed objectives of economic development and prosperity. What most countries have experienced in Africa and the developing world in general is more power and influence to a small group of people.

So accumulation of wealth at top and extraction of natural resources, extraction of wealth from developing countries over the last few decades, in addition to the environmental destruction, to the deterioration of labor standards and quality of life, all for the sake of exporting more, for accumulating more foreign currencies to pay this external debt and presumably to generate enough dollar and euro revenues and currency reserves to also fuel the process of economic development.

But because there’s so much external debt, developing countries have to face the choice every few weeks, every few months, do we, you know, make the payment that’s due to foreign investors, or do we use the limited resources we have to invest in education or infrastructure or public health? So it’s a clear choice between improving quality of life and paying this external debt.

So we’re inviting everybody to join us for this event so we can rethink the process of economic development through an MMT lens, through a lens that focuses on monetary sovereignty, food sovereignty, energy sovereignty, in the context of developing countries, in the context of Africa in particular. So I’m really excited about this event and I’m looking forward to it.

 As I said, we’ll be live tweeting and live streaming and the hashtag for the conference hashtag #AfricanMonetarySovereignty, November 6, 7, 8, and 9 in Tunis. And again, that site for the conference where the live streaming will be in all the links will be there – MES-Africa.org.

So I just wanted to thank all my colleagues who were involved in this planning process for this conference in Tunisia. So the team of core organizers, the biggest credit goes to my colleague, Maha Ben Gadha, and Ines Mahmoud, both from the Tunis office for the Rosa Luxembourg Foundation. And Ndongo Sylla, obviously from the Rosa Luxembourg Foundation in Dakar and our colleague, Kai Koddonbrock from Germany, who was also on the organizing committee.

Grumbine (52:49):

Very good. Thank you so much. And with that, I want to thank both you and Ndongo for a wonderful interview. Thank you so much and good luck at the conference.

Kaboub (53:00):

Thank you.

Sylla (53:02):

Thank you.

Ending Credits (53:09):

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