What is Cancellation of Debt?

In the broad sense, debt cancellation means that the debtor (in this case, the government) cancels or relieves its debt burden.

Cancel debt

Right!

In the broad sense, debt cancellation means that the debtor (in this case, the government) cancels or relieves its debt burden.

In the narrow sense of debt cancellation, the government cancelled its debt in default.

Chinese name

Cancel debt

Foreign name

Debt cancellation

Nature

Economic terms

Be applicable

enterprise

The first is to repay the principal and interest as scheduled. Once the repayment of the principal and interest is completed, the government's debt burden will disappear.

The second is to cancel the debt by default. The method of repaying principal and interest on public debt is, in fact, based on the precondition of repaying the principal and interest on a contract basis.

Due to the different degrees of debt cancellation, the meaning of debt cancellation is different, and the method has changed accordingly. One implication is to cancel the interest burden. The method is: the government either stops paying public debt interest or imposes heavy taxes on public debt interest. The former is called direct debt cancellation and the latter is called indirect debt cancellation. Obviously, the basis for this kind of debt cancellation is to regard the interest burden of public debt as the entire debt burden of public debt. Therefore, if the payment of debt interest can be waived, the debt is actually cancelled. Cancellation of another debt. One implication is to stop paying the entire principal and interest of the public debt, so that the government can. thorough. Relieve your debt burden. From this point, cancelling the debt burden is only a part of stopping the payment of principal and interest on public debt, so it can be called "partial cancellation" or "reduction". However, whether it is the cancellation of all debts or the partial cancellation of debts is an act of canceling debts, and it will have a corresponding impact on public debt economic activities and even the entire socioeconomic activities. Therefore, the debt cancellation we are talking about here refers to the behavior of stopping paying off the principal and interest of public debt.

Although cancelling debt will reduce the government's debt burden and prevent the government from increasing taxes to repay debt, its negative impact is even greater.

First of all, canceling public debt means that the government has abandoned its contract with creditors, and as a result of canceling public debt, not only the interests of creditors are harmed, but also the government's creditworthiness will be reduced.

Secondly, cancellation of debt often means that the government is on the verge of bankruptcy and political instability. Therefore, it will not only cause socioeconomic chaos, but more importantly also cause sociopolitical chaos. Therefore, the government should not solve the debt burden of public debt by canceling the debt.

1. Regime change or revolution.

When there is a change of regime in a country, especially after the revolution, the old regime is overthrown and replaced by the new regime. At this time, the new regime often denies the old regime, the old socioeconomic and political systems, and also denies the period of the old regime. Debt borrowed by the government.

2. Debts were cancelled due to financial crisis and other reasons.

The governments of some countries are unable to repay their debts due to serious financial deficits. Therefore, they have adopted a method of delaying debt repayment. When the financial situation improves, the government often repays a part of the debt by swapping and reorganizing the old debts, and the rest are cancelled.

3 Currency depreciation. Inflation is severe.

The severe devaluation of the currency has actually resulted in the cancellation of public debt. This is because inflation has caused the currency to depreciate, and the government still pays the principal and interest of the public debt according to the face value of the bond. In this way, the actual value of the government repayment is lower than the actual value at the time of issuance, and the difference actually forms part of the public debt cancel.

In addition to the above reasons, the government may also cancel debts for other reasons.