Most advanced economies are in a similar position - having their bonds denominated in their own currency and having a central bank that can never run out of tha

Most advanced economies are in a similar position - having their bonds denominated in their own currency and having a central bank that can never run out of that currency. The Eurozone are an exception, which is probably going to cause the currency to eventually collapse, but that's another story. There aren't really 'huge costs' to paying down debt with new money. People assume that it would cause problems, but when you look into the mechanics of how both central banks and commercial banks work, some things become clearer. The first thing to note is that the money supply is actually constantly expanding, even without the central bank creating money, because new money is also created when central banks issue loans (see [1] for an explanation from the Bank of England, central bank of the UK). So money creation by itself is not inherently inflationary. Inflation actually happens when aggregate demand over some period is greater than the amount of goods and services produced in that period. Money creation generally does add to aggregate demand, but so does all spending in general (i.e. increasing the velocity of money). So, if money creation is properly managed (to keep it from adding too much to aggregate demand), then it can be done without any inflationary consequences. But that only applies for a Government creating money to spend. Changing bonds ("debt") into central bank reserves is actually asset-neutral. The bond is an asset worth a certain amount that can already be bought and sold. Replacing it with central bank reserves makes it more liquid, but doesn't actually add new assets into the system. Of course, there's not much point to paying down bonds like that. Since the Government can't run out of its own currency, their bonds are basically meaningless. Since the gold standard was dropped, they exist mainly because the private sector likes having a zero-risk asset to invest in. What really needs to happen is to stop pretending that bonds and taxes actually finance Government spending, which hasn't been the case since 1971... 1. http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf http://www.bankofengland.co.uk/publications/Documents/quarte...