Hanson, James A.2012-06-062012-06-062007-09https://hdl.handle.net/10986/7329This paper analyzes the recent growth of government domestic debt, including central bank debt, using a new data base on government domestic debt in developing countries with large, open financial systems. On average, government domestic debt grew much faster than GDP between 1994 and 2004 and became larger than foreign debt. The rapid growth of domestic debt reflects financial crises, the growth of central bank debt and the greater attractiveness to governments of issuing domestic debt as well as the recent increase in demands for it. Both its attractiveness and the increased demands for it reflect the current benign international environment to some degree. The main risk of government debt, domestic or foreign, remains its overall size relative to a country's fiscal, financial, and political institutions. While government domestic debt can help the domestic private capital market, large domestic debt, like large external debt, has risks. For example, there can be "sudden stops" in the demand for domestic debt as well as in foreign lending. Governments need to be aware of the risks and burdens in domestic debt issue-crowding out small borrowers, transferring risks to banks when issuing longer maturity, fixed-interest domestic debt and reducing returns, and imposing risks on holders of pensions, annuities, and life insurance policies. Growth of central bank debt can divert central banks from pursuit of the objective of price stability.CC BY 3.0 IGOACCOUNTINGAMORTIZATIONAMORTIZATIONSASSET HOLDINGASSET HOLDINGSASSET MANAGEMENTAUCTIONAUCTION SYSTEMAUCTIONSBALANCE SHEETBANK BALANCE SHEETSBANK CREDITBANK DEBTBANK DEPOSITSBANK HOLDINGSBANK LENDINGBANK LOANSBANKING CRISESBANKING CRISISBANKING SECTORBANKING SECTOR DEVELOPMENTSBANKING SYSTEMBANKING SYSTEMSBONDBOND ISSUESBOND MARKETSBONDSBOOK-ENTRYBORROWERBORROWING COSTBORROWING STRATEGIESCAPITAL FLOWSCAPITAL MARKETCAPITAL MARKETSCAPITAL OUTFLOWSCAPITAL REQUIREMENTSCAPITALIZATIONCENTRAL BANKCENTRAL BANK BILLSCENTRAL BANKSCENTRAL GOVERNMENT DEBTCERTIFICATES OF DEPOSITCERTIFICATES OF DEPOSITSCOLLATERALCOMMERCIAL BANKCOMMERCIAL BANKSCOMPOSITION OF DEBTCOMPOSITION OF GOVERNMENT DEBTCONSUMER CREDITCONSUMER LOANSCONTINGENT LIABILITYCORPORATE BONDSCREDIT BUREAUSCREDIT INFORMATIONCREDIT RATINGCREDIT RATING AGENCIESCRISIS COUNTRIESCURRENCYDEBT HOLDINGSDEBT ISSUANCEDEBT ISSUEDEBT ISSUESDEBT OBLIGATIONSDEBT REPAYMENTDEBT SERVICINGDEBT SERVICING COSTSDEBTSDEFAULTSDEPOSITDEPOSIT INSURANCEDEPOSITORSDEPOSITSDEVALUATIONDEVALUATIONSDEVELOPING COUNTRIESDEVELOPMENT BANKDIRECTED CREDITSDOMESTIC BONDDOMESTIC BORROWINGDOMESTIC CAPITALDOMESTIC CAPITAL MARKETSDOMESTIC CREDITSDOMESTIC CURRENCYDOMESTIC DEBTDOMESTIC DEBT MARKETDOMESTIC DEBT MARKETSDOMESTIC MARKETDOMESTIC MARKETSECONOMIC DEVELOPMENTEMERGING MARKETEMERGING MARKET COUNTRIESEMERGING MARKET DEBTEMERGING MARKET ECONOMIESEMERGING MARKETSENTERPRISE CREDITSEQUITY MARKETSEXCESS LIQUIDITYEXCHANGE RATEEXCHANGE RATESEXTERNAL BORROWINGEXTERNAL BORROWINGSEXTERNAL DEBTFACE VALUEFINANCIAL CRISESFINANCIAL CRISISFINANCIAL DEVELOPMENTFINANCIAL DEVELOPMENTSFINANCIAL MARKETSFINANCIAL SYSTEMFINANCIAL SYSTEMSFISCAL DEFICITFISCAL DEFICITSFOREIGN BANKSFOREIGN CAPITALFOREIGN CURRENCYFOREIGN CURRENCY DEBTFOREIGN DEBTFOREIGN EXCHANGEFOREIGN INVESTORSFOREIGN LOANSFOREIGN MARKETFOREIGN MARKETSGLOBAL DEVELOPMENT FINANCEGLOBALIZATIONGOVERNMENT BONDSGOVERNMENT BORROWINGGOVERNMENT DEBTGOVERNMENT DEBT MARKETGOVERNMENT DEBT MARKETSGOVERNMENT GUARANTEEGOVERNMENT GUARANTEESGOVERNMENT SECURITIESHOLDINGSINFLATIONINSTITUTIONAL DEVELOPMENTINSURANCE COMPANIESINTEREST COSTSINTEREST RATEINTEREST RATESINTERNATIONAL BANKINTERNATIONAL CAPITALINTERNATIONAL DEBTINTERNATIONAL FINANCIAL INSTITUTIONSINTERNATIONAL FINANCIAL STATISTICSINTERNATIONAL LENDINGINTERNATIONAL MARKETSINVESTMENT FUNDINVESTMENT FUNDSINVESTMENT STRATEGIESISSUANCELENDERSLEVYLIFE INSURANCELIFE INSURANCE POLICIESLIQUIDITYLIQUIDITY PROBLEMSLOCAL CURRENCYLONG-TERM DEBTMACROECONOMIC CRISESMACROECONOMIC RISKMACROECONOMIC RISKSMACROECONOMIC STABILITYMARKET BORROWERSMARKET DEBTMARKET INFRASTRUCTUREMARKET INTEREST RATESMARKETABLE SECURITIESMATURITIESMATURITYMICRO-CREDITMONETARY POLICYMONEY MARKETMUTUAL FUNDSNATIONAL TREASURIESNEGATIVE SHOCKSOUTSTANDING DOMESTIC DEBTPENSIONPENSION FUNDPENSION FUNDSPENSION SYSTEMSPENSIONSPRICE STABILITYPRIMARY DEALERPRIMARY DEALERSPRIVATE BANKPRIVATE BANKSPRIVATE BORROWERPRIVATE BORROWERSPRIVATE CAPITALPRIVATE CAPITAL INFLOWSPRIVATE CREDITPRIVATE CREDITSPRIVATE SECTOR CREDITPUBLIC BANKSREAL EXCHANGE RATEREPAYMENTREPOSRESERVERESERVE REQUIREMENTRESERVE REQUIREMENTSRESERVESRETURNSRISK OF DEFAULTRURAL BORROWERSSECURITIESSETTLEMENTSHORT-TERM DEBTSMALL BORROWERSSOVEREIGN RATINGSSTATE BANKSTATE BANKSSTOCK MARKETSSTRUCTURAL PROBLEMSTAXTOTAL DEBTTRADINGTRADING SYSTEMSTRANSITION COUNTRIESVALUATIONSWITHDRAWALYIELD CURVEWorld Bank10.1596/1813-9450-4348