The writer, a former IMF managing director, was governor of the Bank of France 1987-93
Can interest rates be eliminated to avoid servicing monumental debts? The Covid-19 crisis, exacerbated by the consequences of having hyper-accommodative monetary policy for too long, has led to entire economies becoming over-indebted.
To deal with this situation where public leverage has broken all peacetime records, some advocate monetising the debt through central bank purchases of new bond issues and negative interest rates. This is despite the historical record which shows that debt restructurings have proven to be the most effective way to address unsustainable debts.
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