Why do governments care so much about reducing public debt if they are the sovereign issuer of their currency?
In: Economics
It costs money to service public debt (pay the interest). The government could print more money to pay off its debt, but this increases the total amount of money in the economy and so leads to inflation. This is called devaluing the currency and is a valid fiscal policy carried out historically in many countries. The problem is that next time you come to borrow money potential lenders will be cautious. They don’t want to be paid back in money that has just been devalued because by definition that money is worth less. So lenders will want more interest, making the new debt more expensive for the government.
I hope that makes sense.
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