The coronavirus economy is shredding records for government borrowing and for central-bank lending. Soon it may also smash the taboo that’s supposed to keep those two things apart.
Governments paying for budget spending with loans from their own central banks is known as monetary financing. It’s long been seen as a slippery slope that starts with politicians riding roughshod over central-bank independence, and ends in runaway inflation as they splash what feels like free cash around the economy.
The stricture against direct financing has held up even through a series of crises when central bankers did in fact buy plenty of public debt. They just made sure to do it in a roundabout way, snapping up bonds in the secondary market.