Debt monetization: A printing of money strategy for Central Banks to finance governments expenditure during COVID-19 pandemic

Although there are some crucial and subtle differences, central bank emergency policies during the COVID-19 pandemic are thought to be very comparable to debt monetization.

The act of a government borrowing funds for example overdrafts from the central bank to pay for public expenditures instead of tax increases or bond sales to private investors is term debt or finance monetization. When central banks purchase government debt, they are essentially creating fresh money.

Money production to boost the available supply of money is termed as printing of money. Printing of money includes debt monetization which involves borrowing from the central bank to pay for government expenses, this effectively produces new money. In fact, the printing of money is not only about printing new currency, but a debt monetization is a form of printing money.

In summary printing of money refers to the money creation where the money supply is increased, and debt monetization involves the financing of government expenditures by borrowing from the central bank. Again, security printing or paper money printing is the commonest form of printing of money. Furthermore, quantitative easing which involves the lowering of interest rates and modern monetary theory which advocates for the creation of new money it finances government purchases are part of the printing of money.

This procedure of debt monetization is frequently referred to informally and disparagingly as printing money or money creation. Many nations forbid it because they view it as hazardous because it could lead to inflation that spirals out of control. In order to avoid printing excessive amounts of a new currency, central banks frequently monitor the Consumer Price Index to prevent the creation of new money.

Governments are permitted to use debt monetization financing strategy to fund expenditure items during the pandemic era but it has to be backed by law. It is easily adopted by governments to circumvent the law to get the central banks to support the government operations in times of unforeseen situations. This approach requires the consultation, cooperation, and collaboration of the central bank and government.