When sovereign debt burdens become severe, governments may implement Financial Repression Frameworks—regulatory interventions designed to channel domestic capital directly into government bonds at below-market interest rates.
Common Financial Repression Tools
- Mandatory Sovereign Holding Caps: Forcing domestic pension funds, insurance firms, and commercial banks to allocate a dominant percentage of their portfolios to government debt securities.
- Artificial Interest Rate Caps: Imposing hard regulatory ceilings on deposit interest rates, allowing inflation to outpace nominal returns to erode the real value of outstanding state liabilities.
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