Understanding the precise nature of debt monetisation

When central banks implement quantitative easing, they buy government bonds and pay by creating money (one talks of “ debt monetisation ” ). But it is important to understand that in reality, on the liabilities side of the consolidated balance sheet of the government and the central bank (these two balance sheets can be consolidated because central banks belong to governments), this entails: A decrease in bond debt, which bears the cost of long-term interest rates; An increase in monetary debt, specifically in banks’ reserve accounts at the central bank, which bears the cost of short-term interest rates. We then see that: The (consolidated) government’s total debt becomes a shorter-term debt that is more sensitive to short-term interest rates (but always pays interest: if any interest rate rise s , short-term or long-term, the interest paid by the consolidated government increases); The government’s long-term debt is reduced and i t s short-term debt is increased, which drives down long-term interest rates relative to short-term interest rates. Herein lies the aim of this policy: to reduce the cost of the government’s bond debt; The bond debt held by the central bank does not appear in the government and central bank’s consolidated balance sheet ( there is therefore no point in cancelling it); Monetisation of the government’s bond debt (quantitative easing) reduces the risk of a debt crisis if government bond holders can refuse to hold more whereas banks cannot refuse to hold more excess reserves at the central bank; Quantitative easing is close to a situation where the government finances itself by issuing short-term treasury bills instead of bonds.