Monetary financing rubbishedBut financial interests claim this enables central banks to finance government deficits, that is, monetary financing. Monetary financing undermines central bank independence — hence, the strict segregation of monetary from fiscal authorities — supposedly needed to prevent runaway inflation. Recent International Monetary Fund (IMF) research insists monetary financing “involves considerable risks”. But it acknowledges that monetary financing to cope with the pandemic did not jeopardise price stability. A Bank of International Settlements paper also found that monetary financing enabled developing countries to respond counter-cyclically to the pandemic.
