This is really fascinating as a parable about money, but Mr. Alt's post-currency Italian fantasia is missing the one important ingredient that makes Italy so special today: politics. 

After the general clean-up was completed, the ERB undertook whatever services local mayors determined could be usefully provided without competing with local businesses. Proof-of-Concept grant programs—modeled on the Gates Foundation efforts to eradicate tropical diseases—were established to provide seed money for small-scale innovators on any topic, with the grants awarded through an internet-based peer review and voting process.

I'm not sure how the notorious national, regional, municipal & bureaucratic politics have disappeared in 7 years' time, but here's how this kind of thing would go down in the Italy I know.

After the general clean-up was declared complete (even though Naples was still in ruins), the ERB undertook whatever services local mayors determined could be easily expropriated to bail out city budgets and/or line their own pockets & those of political allies. Proof-of-Concept grant programs—modeled on the Gates Foundation efforts to eradicate tropical diseases—were established to provide seed money for small-scale innovators on any topic, with the grants awarded through an internet-based peer review and voting process that has been almost entirely corrupted by organized crime families in many parts of the country.

And this:

The Mafioso [sic] had begun scrambling to convert their businesses to any currency other than the Italian Lira because they discovered it was suddenly impossible to fill suitcases with laundered cash for their felonious transactions. The godfathers were steaming with fury—but, of course, it was awkward to make their objections known. In a related discovery, the federal government found that a simple computer program virtually eliminated the corruption typically endemic in government contracts. Every dL issued, it turned out, could be tracked endlessly, and accurately, through the economy. The program, known as L-Track, could do searches with variable filters which generated an instant report of where the digital Lira were at any given moment. It was impossible to hide them, and difficult to skim them without being seen.

Bwa ha ha ha! A totally incorruptible data system, eh? Yeah, the families of the Camorra, 'Ndrangheta, Cosa Nostra, etc., not to mention legions of corrupt Italian ministers, bureaucrats, judges, police, etc. might have a few surprises in store.

Anyway, enough about the brainhurt this caused me. I would love to hear some more economic analysis of this idea, that currency can be issued indefinitely and taxes used to curb the resulting inflation. The digital currency idea is a separate issue with separate problems.

So in the scenario Italy is out of Euros, and by extension out of any other hard currency.

How does it buy imported goods? Italy must import fuel and many other goods to keep the economy working. How does it do this with digital Lira that the government can simply keystroke into existence?

You would need to implement severe foreign exchange controls. Euros coming in to purchase Italian goods would need to be made available to importers. Yet an Italian who got his hands on "real" currency would be likely to deposit abroad. Capital flight would be rampant, imported goods expensive.

This is just a scenario where the government emits money without limitation. It's been tried many times, in Italy even. The currency is debased, inflation ensues. It's not a horrible strategy to get out of a deep crisis. Certainly with rioting in the streets you need to do anything that works, and fix it later. It would stimulate economic activity. But it cannot work for long and a transition to more conventional rules is needed as soon as practical.

The bottom line is that creating money via printing press instead of bonds can be inflationary, sometimes hyperinflationary. The argument against MMT are Austria and Canada, which run annual budget surpluses and have healthy, resilient economies. Since this diary presents the half-story on MMT, the other half here, here, here and here.