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Debt monetization or monetary finance, is the practice of the government borrowing money from the central bank, who, in the process of buying the debt, creates new money. It is one of the practices often informally called printing money.

Overview
When a government increases its spending, it can pay for the new spending by increasing its revenue, principally by raising taxes, or it can go into deficit—allowing the spending to exceed the revenue. The deficit can be financed by either increasing the amount of government bonds held by the public (public borrowing) or by increasing the monetary base (often informally called "printing money"). In developed countries, such as the United States, governments are not allowed to create new money and this power is in the hands of the central bank, but debt monetization provided ways for it to still finance new spending by new creation of money.

Debt monetization can occur in several ways: the central bank can buy the bonds issued by the government, therefore absorbing the debt that would have otherwise been sold through the financial markets; or simply by letting the government has a negative balance. In either case, new money is effectively created, and government debt to private parties does not increase.

Policy debate
Because the process implies coordination between the government and the central bank, debt monetization is seen as contrary to the doctrine of central bank independence. Most developed countries instituted this independence, "keep[ing] politicians [...] away from the printing presses", in order to avoid the possibility of the government, in order to increase its popularity or to achieve short-term political benefits, creating new money and risking the kind of runaway inflation seen in the German Weimar Republic or more recently in Venezuela. Such an outcome can also result from debt monetization, if deficit persists over a long time and money supply continues to accumulate.

On the other hand, there are arguments among economists for this practice as an emergency measure. During an exceptional circumstances, such as the situation created by the COVID-19 pandemic, the benefits of avoiding a severe depression outweighs the need to maintain monetary discipline. In addition, national responses to the 2007–2009 Great Recession showed that money can be injected into economies in crisis without causing inflation.

Comparison with quantitative easing
Quantitative easing (QE) is a related policy in which the central bank buys financial assets, including government bonds through the secondary markets, in order to stimulate the economy. According to the business publication Bloomberg, "the dividing lines are blurry" between QE and debt monetization. Although in theory, QE is intended to lower borrowing costs for the entire economy, in practice governments have been its main beneficiary. In additions, assets bought by the central bank as part of QE in practice remain in its possession rather than sold back to the markets.