Fiscal Dominance occurs when a sovereign’s public debt and deficit levels rise to a point where the central bank can no longer use its monetary tools to combat inflation, because raising interest rates would significantly increase government borrowing costs and push the state into insolvency.

[Public Debt Skyrockets] ---> Central Bank Captive to Government Debt Costs ---> Prevented From Raising Rates ---> Inflation Expectations Unanchor

Under fiscal dominance, monetary policy loses its independence and becomes a tool to fund the state treasury, undermining price stability and destroying public trust in the national currency.