The French back in the 1960s had such a system where the central bank created the money and lent it to the government.

Who Earns the Money from Government Debt?

Posted Oct 21, 2019 by Martin Armstrong

QUESTION: Would you please explain exactly what government debt is and who receives the interest payment that governments make on borrowings? I thought that Governments borrowed from their respective central banks and paid the central bank interest on the debt. I never understood why a government would have to pay any interest. My brother tells me that all government debt is made up of bonds and the interest payment goes to the bondholder

Thank you

MMcDH

ANSWER: The interest paid on debt is to the bondholders, which includes foreign governments, Social Security, and private investors/institutions. The holdings of the debt change. Under Quantitative Easing, the bonds held by the central banks mean they receive the interest payments.

The French back in the 1960s had such a system where the central bank created the money and lent it to the government. That is a far better system because then the government does not compete with the private sector to borrow money thereby reducing economic growth.