Modern Monetary Theory argues that a sovereign government issuing debt in its own currency cannot be forced into involuntary default on that currency-denominated debt.
MMT is a heterodox macroeconomic framework associated with writers including Warren Mosler, Stephanie Kelton, and L. Randall Wray. Its central distinction is between governments that issue their own fiat currency and those that borrow in a currency they do not control. A monetary sovereign can create the units needed to meet nominal obligations, although doing so may create inflation or weaken the currency.
That claim does not mean such governments face no constraints. MMT emphasizes real limits: available workers, productive capacity, energy, materials, and foreign-exchange conditions. Once spending pushes demand beyond the economy’s capacity, inflation—not insolvency in the usual sense—becomes the binding problem. Political limits, exchange-rate pressure, and debt held in foreign currency also matter.
The theory is often confused with chartalism, an intellectual precursor emphasizing money’s connection to state authority and taxation. Monetarism instead focuses on the relationship between money supply and prices, while the fiscal theory of the price level explains price determination through the government’s intertemporal budget constraint. MMT’s claims remain controversial among economists.