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Publication of Working Paper 108: Public debt, central bank and money: some clarifications


The purchase of securities, and more specifically government bonds, belongs to the monetary policy implementation framework of many central banks, the Eurosystem being no exception for that matter.

However, as for the euro zone, that tool remained unused until 2010, while present in the Eurosystem’s toolkit since its creation. Its implementation in times of crisis raised many debates, comments and even resorts to courts of justice. One of the central issues relates to the monetary financing of the public sector which in turn questions the relations between public debt, central banks and money.

This paper does not aim at providing a definite answer to the many questions, or to offer an arbitrage between the different arguments and schools of thoughts. More simply, in view of the often confused state of discussions, it goes back to the basic concepts of money creation, more specifically to the one of money creation by central banks for the benefit of the public sector.

Through a series of “typical cases” of interactions between central banks, commercial banks, public sector and households, the paper favours a better understanding of the quite complex mechanic of money creation through the purchase of public bonds by central and commercial banks. It also addresses a connected topic, i.e. the article 123 of the treaty on the Functioning of the European Union that prohibits the direct purchase by central bank on the primary market of debt instruments issued by the public sector.

The Working Paper is available here.