Deficit Monetisation

The deficit of something means, less availability or the absence of availability of the required amount and the term Monetisation means to make available the money to fill the gap of deficit

         Deficit monetisation, also called debt monetisation or money financing, is a process by which RBI makes available the money to fulfil the government's spending by the printing of money in lieu of buying government securities.

         RBI especially prints money to fulfil the expenditure of government securities, and that is completely different from Open Market Operation (OMO), where government and RBI mutually sell and buy G-Secs(Government securities like Treasury bills and Bonds) to balance the liquidity flow in the Economy.

        Making of money available, by Money Financing, in the economy increases the buying capacity of the citizens, but supply-side growth remains unchanged in the short term, eventually leads to the Hyperinflation, and that is the negative aspect of the Deficit Monetisation.

        That is why many economic experts suggest this step to be the last resort of any economic crisis.

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