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Inpublic finance,internal debt ordomestic debt is the component of the totalgovernment debt in a country that is owed tolenders within the country. Internal government debt is complement isexternal government debt. The main sources of funds for internal debts arecommercial banks and otherfinancial institutions.
Internal public debt owed by a government (money a government borrows from its citizens) is part of the country's national debt. It is a form offiat creation ofmoney, in which the government obtains finance not by creating itde novo, but by borrowing it. The money created is in the form oftreasury securities orsecurities borrowed from thecentral bank.
These may be traded but will only rarely be spent ongoods andservices. In this way, the expected increase ininflation due to the increase innational wealth is lower than if the government had simply created the moneyde novo and increased the more liquid forms of wealth (i.e., themoney supply).
Reinhart, Carmen M.; Rogoff, Kenneth S. (2011)."The Forgotten History of Domestic Debt"(PDF).Economic Journal.121 (552):319–350.doi:10.1111/j.1468-0297.2011.02426.x.JSTOR 41236982.S2CID 154398807.
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