The Cornish Pound: A Test Case for Modern Monetary Theory (MMT)

Modern Monetary Theory (MMT) is an idea that will not die. Briefly put MMT is a macroeconomic theory asserting that sovereign governments with absolute control over their own currency cannot go bankrupt. Those in the left and centrist press offer up think pieces on the need for central bank and treasury reform, invoking some or all of the strands of MMT. MMT as its understood today, has been popularised by Stephanie Kelton in The Deficit Myth, which posits radical changes to the relationship between central banks and treasury ministries/departments. 

There are five fundamental pillars to MMT. The state has a monopoly over money issuance; debts incurred by the state in the currency can be paid off by issuing its own currency; commercial bank loans create deposits; governments must spend whatever they need to achieve goals; a deficit in the public finances means a surplus in non-public finances. 

There are critical assertions of MMT. Interest rates are naturally zero, and using them to control investment levels is ineffective. During contractions, states must use job guarantees to stabilise the economy. Further, treasuries are not to cost different government policies in terms of deficits or debt, but to hold inflation-creating monopolies and corporations to account for their effects on full employment and price stability. 

While those technical aspects are still being debated, they are not the main issue at hand. Under MMT, the government sets taxes to control demand for the sovereign currency, rather than to fund spending. In reality, we know that legislatures and governments can take long periods of time to set budgets or agree on policies of national importance. 

It could be impossible to trust elected officials to ensure full employment and price stability, particularly in a situation where party politics is deeply fragmented. Yet 2026 is a good time to embrace innovative policy. In constructively challenging orthodoxy, we can counter the rise of authoritarianism, whose denizens are adept at learning the dynamics of static orthodoxy and bending them to their advantage. 

If an MMT system can work, then we would have a solution to the root causes of the biggest issues of our time, and a solution which can be kept in the democratic realm and outside the influence and control of authoritarianism. However, we do not have any real evidence of an MMT system operating. While we saw Quantitative Easing during the Great Recession and the COVID-19 Pandemic, it did not ignite radical change to central government financing. 

When we do not have the evidence that we need, the intrigued researcher must do the natural thing and seek evidence to confirm or deny the theory. In this specific context, an MMT system can only be proven or disproven with the help of a pilot scheme. One place that could benefit from the presence of this pilot scheme is Cornwall.

Cornwall: A Localised Experiment

Cornwall is an ideal testing ground for this pilot scheme for several reasons. Cornish representatives are asking for a devolved assembly like that in Scotland, Wales, and Northern Ireland, and to be recognised as the UK’s fifth nation. 

Cornwall has a small population of roughly 570,000 people. The county faces issues that the rest of the majority of the UK is experiencing – unaffordable housing, stretched or underdeveloped healthcare systems, and infrastructure issues. They also seek to promote the Cornish language and introduce it on modern road signage and in public life. 

In this pilot scheme, Cornwall will be granted a permanent regional government with powers and limits similar to those of Holyrood, the Senedd, or Stormont. They will, however, also be granted a temporary “Bank of Cornwall” with the ability to issue “Cornish Pounds” for a determined period. The Cornish Assembly will be able to collect taxes only in “Cornish Pounds” during this time to determine currency demand.

If a team of experts was drafted in to assist the Cornish with developing their presence as the fifth UK nation, they could also assist with the implementation of the MMT system. The results could tell us how effective MMT systems are in a pilot, and provide evidence needed to support scaling this system across the entire UK. However, the results could also dissuade us from pursuing MMT at all. 

Challenges Ahead 

There are challenges to this theoretical pilot. Experts would need to work with communities to rapidly devise a devolved parliament, while also effectively communicating the role of their parliament in leading an MMT system. Cornwall is politically divided between ReformUK and the Liberal-Democrats, who struggle to agree on council policy.  

Such a Cornish pilot is not top of Andy Burnham’s to-do list. Yet pilots of this kind are worth consideration. If we remain afraid of radical pilots which push the boundaries of our understanding of fiscal policy and regional governance, we become vulnerable to threatening actors who have no such fears of experimentation and innovation in their own territories and institutions. 

Image: Unsplash/Marc Markstein

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