Identification

• Debt monetization occurs when a country's central banking system -- the Federal Reserve Bank in the U.S. -- prints currency to help finance the country's debt. For the U.S. to finance its debts, for example, it must sell bonds to investors in an open market. The Federal Reserve Bank, which operates independently of the U.S. government, then purchases the bonds -- often by printing currency that is not already in circulation. The debts never transfer directly between the Federal Reserve and the U.S. Treasury.