Internal debt

Internal debt

Internal debt is the part of a country's debts that is owed to creditors who are citizens of that country.

It is a form of fiat creation of money, in which the government obtains cash not by printing it, but by borrowing it. The money created is in the form of treasury securities or securities borrowed from the central bank. These may be traded but will only rarely be spent on goods and services. In this way, the expected increase in inflation due to the increase in national wealth is lower than if the government had simply printed the money and increased the more liquid forms of wealth (i.e., the money supply).

The internal debt forms a part of the national debt of the country. Its complement is external debt.


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