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.