Debt monetization is a process by which a government, central bank, or other financial institution purchases government debt, such as treasury bonds or bills, using newly created money or by creating new money through a process called quantitative easing (QE).
The purpose of debt monetization is typically to finance government spending, such as social programs or infrastructure projects, without increasing taxes or issuing additional debt. By purchasing government debt with newly created money, the government or central bank effectively creates additional liquidity in the financial system, which can stimulate economic growth and increase employment.
However, debt monetization can also have negative consequences, such as inflation, currency devaluation, and a loss of confidence in the government’s ability to manage its finances. If the government or central bank creates too much money, it can lead to an oversupply of currency, which can cause prices to rise and reduce the purchasing power of the currency.