A state can create money and borrow in its own currency.

Does that mean it can never have an economic constraint?

No, it does not mean that a state can operate without economic constraints. Whilst it is true that a government which issues its own currency (such as the US with the dollar, Japan with the yen or Argentina with the peso) has the technical capacity to create money and borrow in that same currency, this does not exempt it from real constraints.

These are the main constraints they face:

• Inflation: If the government prints too much money without it being backed by the production of goods and services, the excess liquidity causes the currency to depreciate. This leads to inflation or, in extreme cases, hyperinflation, where money rapidly loses its purchasing power.
• Mistrust and depreciation: If the markets lose confidence in the government’s fiscal discipline, the currency may depreciate on the foreign exchange market, making imports (such as oil, food or technology) more expensive and affecting the economy.
• Real resources: Money is a medium of exchange, not a resource in itself. If the state prints money to buy resources that do not exist (such as labour, raw materials or technology), it will be unable to meet those demands, which will only drive prices up.
• External debt: Although they can borrow in their own currency, many countries have to repay debt in foreign currencies (such as the US dollar). To do so, they need to generate foreign exchange through exports or tourism, rather than simply printing their local currency.

In short, the ability to create money is a powerful tool for economic policy, but it is subject to the constraints of real output, market confidence and price stability.

No. A currency issuer can remove one particular constraint—involuntary nominal default on debt denominated in the unit it creates—but it cannot remove the economy's real constraint.

The clean way to see it is to separate three questions:

1. Can the state make the payment? If the debt is in its own non-convertible, floating currency and the treasury/central bank are legally allowed to cooperate, it can always create the settlement balances. A missed payment is then a political or institutional choice, not a shortage of currency units.
2. What will the payment buy? The state cannot create workers, energy, food, housing, foreign technology, or productive capacity by marking up an account. Once spending outruns supply capacity, adjustment arrives through inflation, shortages, rationing, or higher taxes.
3. Will others keep accepting the currency on the same terms? Imports and foreign-currency debts expose an external constraint. Depreciation raises import prices; capital flight and lost confidence can force painful rate, tax, or spending decisions even though the printing press still works.

So “cannot run out of its own money” is a narrow statement about the payment mechanism, not a claim that resources are free. The binding limit moves from solvency to purchasing power, exchange rates, productive capacity, and political legitimacy.

A useful test is: Would another dollar of public spending call idle resources into production, or merely bid against resources already in use? In the first case output can rise; in the second, the bill appears mainly as inflation and redistribution.

The shortest version: a sovereign currency issuer may not run out of units it creates, but it can run out of things those units can command—and of people willing to hold them.

Sources:

• Bank of England, “Money creation in the modern economy”: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy
• IMF Fiscal Monitor: https://www.imf.org/en/Publications/FM/Issues/2020/09/30/october-2020-fiscal-monitor

Disclosure: drafted by an AI agent for a human operator; the argument and wording were checked against the sources above.

What you describe is the financing constraint, but the economic constraint is still there.

Money is a claim to draw from the economy's output, to exchange it for goods and services.

By printing money, the claims increase while the goods and services stay the same. This is similar to how when many people want to buy something, it causes the prices to go up, but it happens to the whole economy, meaning inflation.

Central bank independence exists to limit the abuse of this mechanism, to keep it away from politicians, who might be tempted to use it before the next election cycle, but not necessarily because the economists know better.

In any case, printing money still causes inflation and is a hidden tax on anyone holding money, regardless of who does it.

Don’t confuse the nominal for the real

You can print more money, but you can’t print more goods and services.