Debt Monetization

Monetization of government debt refers to the government selling government bonds to the central bank to cover fiscal deficits caused by increased government spending.

In addition, monetization of government debt can lead to an increase in base money, which may push up prices.

If this happens, government debt is ultimately shifted onto private economic agents.

Despite these risks, measures that could be called monetization are attempted because, in a difficult economic situation, when the government's fiscal capacity is also exhausted, there is no place to turn other than the central bank.

Among the world's major central banks, the Bank of Japan (BOJ) is considered the closest to monetization.

For example, creating a black bank and having the central government bankrupt it; at this time, the government raises banks' reserve requirement ratio to prevent too much currency from circulating in the market.

Topics: central bank
Category: Wiki/Economy