The concept of the government owing debt to its own central bank raises a significant accounting question: should the official government debt figures be reduced by the amount of government bonds held by the central bank? For example, this would imply that the UK's national debt in March 2021 was effectively £800 billion lower than the reported total.

The Question of Adjusting Official Government Debt for QE Holdings

A conceptual paradox arises from quantitative easing due to the government's ownership of the central bank. Since the government is the owner, the massive volume of government bonds purchased by the central bank—such as the UK's \£800 billion holding in March 2021—effectively represents debt that the government owes to itself.

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To illustrate the magnitude of the UK's quantitative easing program, by March 2021 the government's debt to the Bank of England from bond purchases reached nearly \£800 billion. This amount constituted almost half of the total UK government debt at that point in time.

Scale of UK Government Debt to the Bank of England (March 2021)

To cite the ebook, use The CORE Econ Team 2023 The Economy 2.0: Macroeconomics Open access e-text https://core-econ.org/the-economy/.

To cite a unit, use The CORE Econ Team 2023 The Economy 2.0: Macroeconomics Open access e-text https://core-econ.org/the-economy/ Unit [unit number] (url).

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