For the last year or so, I've been working on a working paper that explains the banking system from the MMT perspective and how legal and economic incentives inform our understanding of chartalism and monetary policy. MMT co-founder Warren Mosler was kind enough to assist me, and we are proud to announce that it is available for download and comment now.
Here is the abstract:
Modern Monetary Theory illustrates how governments control the use of currency, including the private banking system’s ability to create credit. Additionally, MMT’s framework argues that governments who want to encourage households to purchase consumer goods can focus on directly increasing those individuals’ deposit accounts at commercial banks—as manipulating reserve balances is inconsequential. In this short primer, we will explain the liabilities of the banking system and how the entities in the banking system interact as they hold and transfer liabilities between one another. Then, we will explain the implications this system has for the theory of state money and for monetary policy.