eli5: if two countries both own portions of each others debt, does that debt cancel out?
In: 397
“debt” is the common term but the real name is “bond”. They don’t cancel out because they are different agreements.
To keep it simple. I can issue a bond that says I will pay whoever hold this napkin in 2030 $1000. You buy that napkin from me for $950.
Next year you can issue a bond that you will pay whoever hold this (different) napkin in 2035 $1000 and sell it to me at $900.
How would they cancel out? Who would own the $50 different? How do you deal with the difference in years (2030 vs 2035). I might not even have your napkin anymore because I sold it to Iris who now reside in France.
Even if countries agree to a cancellation terms, there are millions of these bonds on the market and it requires significant manpower to track down, count, reconcile and calculate their values. The easier way is to just let them run their course.
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