Loose monetary policy, dollar depreciation, and debt sustainability: Do not forget Venice by Donato Masciandaro, Davide Romelli, Stefano Ugolini published by VOXEU (9/2025).
History suggests that using lax monetary policy and a weaker currency to address debt sustainability is a dangerous game. This column revisits a unique early experiment with a managed float of state-issued money in Venice between 1619 and 1666. Newly digitised exchange rate data show that even for a government with a strong fiscal reputation, credibility alone was not enough to preserve currency stability when fiscal and monetary policies lacked time consistency. The Venetian case offers a cautionary lesson for today: reputation cannot indefinitely shield an international currency from the risks of fiscal dominance.