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Governments create debt by issuing government bonds and bills. A central government with its own currency can pay for its spending by creating money ex novo. During the Early Modern era, European monarchs would often default on their loans or arbitrarily refuse to pay them back. This generally made financiers wary of lending to the king and the finances of countries that were often at war remained extremely volatile. The creation of the first central bank in England—an institution designed to lend to the government—was initially an expedient by William III of England for the financing of his war against France. He engaged a syndicate of city traders and merchants to offer for sale an issue of government debt. Centre: George III, drawn as a paunchy man with pockets bulging with gold coins, receives a wheel-barrow filled with the money-bags from William Pitt, whose pockets also overflow with coin.

To the left, a quadriplegic veteran begs on the street. To the right, George, Prince of Wales, is depicted dressed in rags. A new way to pay the National Debt, James Gillray, 1786. King George III, with William Pitt handing him another moneybag.

The establishment of the bank was devised by Charles Montagu, 1st Earl of Halifax, in 1694, to the plan which had been proposed by William Paterson three years before, but had not been acted upon. The founding of the Bank of England revolutionised public finance and put an end to defaults such as the Great Stop of the Exchequer of 1672, when Charles II had suspended payments on his bills. From then on, the British Government would never fail to repay its creditors. Public debt as a percent of GDP, evolution for USA, Japan and the main EU economies. A government bond is a bond issued by a national government. Such bonds are most often denominated in the country’s domestic currency. 2000 was denominated in US dollars.

Government debt, synonymous to sovereign debt, can be issued either in domestic or foreign currencies. Investors in sovereign bonds denominated in foreign currency have exchange rate risk: the foreign currency might depreciate against the investor’s local currency. Sovereigns issuing debt denominated in a foreign currency may furthermore be unable to obtain that foreign currency to service debt. This article or section may contain misleading parts. Please help clarify this article according to any suggestions provided on the talk page. General government debt as percent of GDP, United States, Japan, Germany. Interest burden of public debt with respect to GDP.