A government needs to finance a new public project. It can either issue bonds that require it to pay 5% annual interest to bondholders, or it can print new physical currency to cover the project's costs. Focusing solely on the direct costs of borrowing, why is printing currency a less expensive option for the government than issuing bonds?

Government Financing Decision

Government Financing Methods

When a government prints new physical currency to pay for its expenditures, it is essentially borrowing from the public at a zero interest rate, making this a completely cost-free method of government financing.