The repayment of public debt is the return to maturity by the State of the capital that natural or legal persons have lent it.
In general, when the state sector issues public debt , it has a maturity that will depend on the financing needs and that may be through treasury bills , bonds and state obligations. The repayment of public debt may be due to various circumstances, either by the mere return to maturity of the debt, or by a general policy of reducing public debt.
The amortization of public indebtedness is closely related to the nature of the bonds and obligations that the state has issued, so that it will only be returned in those public titles that are amortizable, that is, they have a specific and clear maturity, since they do not All public indebtedness is amortized by the return of the principal borrowed, but the state is issuing coupons with which to pay the interest on the principal, without it ever being repaid. This is what is known as perpetual indebtedness.
The amortization of public debt as an instrument of monetary policy
Public debt is not only a way of financing the public needs and budgets of administrations, but it is also an important element in terms of the monetary policy of the states. Through the issuance and amortization of public debt , the state can reduce or increase the money supply in the market:
- In a situation of general inflationcharacterized by having excess money in the market, the state can issue public debt to reduce the money supply in the market and thus reduce the amount of money in circulation.
- On the contrary, in a situation of deflation, the state must repay public debt (buy securities) in order to flood the liquidity market, with money.