<p>Yes, this effectively means that UK government owes itself money. While this might seem strange there is a reason why this is done. When UK government borrows from private individuals, firms or other governments it is borrowing already pre-existing money in the economy. However, when UK government borrows from BoE it borrows against newly created reserves and thus newly created money.</p>
<p>In this way government can relax its intertemporal budget constraint a bit. A government inter-temporal budget is given by:</p>
<p><span class="math-container">$$G = B + \theta +T$$</span></p>
<p>where <span class="math-container">$G$</span> is government spending, <span class="math-container">$B$</span> is borrowing , <span class="math-container">$\theta$</span> monetary financing, and <span class="math-container">$T$</span> taxes net of interest payments. Although, debt is still involved BoE buying bonds is effectively theta, and this allows government to increase government spending without raising taxes <span class="math-container">$T$</span> or borrowing more  from other sources for which government has to pay interest (in case of BoE holding UK debt the interest payments are just 'recycled' to the treasury).</p>

CC BY-SA 4.0
2023-06-04T10:43:14.723Z
2023-06-04T10:43:14.723Z
1muflon1
<p>In <a href="https://www.economist.com/finance-and-economics/2021/07/24/lessons-from-britain-on-the-balance-between-monetary-and-fiscal-policy" rel="nofollow noreferrer">this article</a> the Economist writes about the BoE:</p>
<p>&quot;in the past decade the bank’s successive rounds of quantitative easing (qe), whereby it creates new money to buy bonds, have left it holding more than a third of the government’s entire stock of debt. That has, awkwardly, dragged it back into the realm of public-debt management.&quot;</p>
<p>From my understanding qe normally involves the buying of primarily government bonds. This would mean the BoE now has lots of UK government bonds. The bank of England is owned by the government so how is a government owning its own bond not just a promise to pay itself?</p>

CC BY-SA 4.0
2023-06-03T14:38:07.167Z
Yes, that is what it is.
H2ONaCl
CC BY-SA 4.0
2023-06-06T16:24:59.243Z
@H2ONaCl I just thought it odd phrasing, the idea of owing yourself money and calling it dept seemed an odd premise.
Ira Watt
<bonds><quantitative-easing>
How can the Bank of England hold government debt through quantitative easing?
Ira Watt
# How can the Bank of England hold government debt through quantitative easing?

(Asked by: username_0 on 2023-06-03)

In [this article](https://www.economist.com/finance-and-economics/2021/07/24/lessons-from-britain-on-the-balance-between-monetary-and-fiscal-policy) the Economist writes about the BoE:

"in the past decade the bank’s successive rounds of quantitative easing (qe), whereby it creates new money to buy bonds, have left it holding more than a third of the government’s entire stock of debt. That has, awkwardly, dragged it back into the realm of public-debt management."

From my understanding qe normally involves the buying of primarily government bonds. This would mean the BoE now has lots of UK government bonds. The bank of England is owned by the government so how is a government owning its own bond not just a promise to pay itself?

**Tags:** bonds, quantitative-easing

> **Comments:**
> **username_1**: Yes, that is what it is.  
> **username_0**: @username_1 I just thought it odd phrasing, the idea of owing yourself money and calling it dept seemed an odd premise.  

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## 1 answers

### Answer by username_2 on 2023-06-04. Score: 1 | Accepted answer

Yes, this effectively means that UK government owes itself money. While this might seem strange there is a reason why this is done. When UK government borrows from private individuals, firms or other governments it is borrowing already pre-existing money in the economy. However, when UK government borrows from BoE it borrows against newly created reserves and thus newly created money.

In this way government can relax its intertemporal budget constraint a bit. A government inter-temporal budget is given by:

$$G = B + \theta +T$$

where $G$ is government spending, $B$ is borrowing , $\theta$ monetary financing, and $T$ taxes net of interest payments. Although, debt is still involved BoE buying bonds is effectively theta, and this allows government to increase government spending without raising taxes $T$ or borrowing more from other sources for which government has to pay interest (in case of BoE holding UK debt the interest payments are just 'recycled' to the treasury).


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