public finance Public finance refers to the monetary resources available to governments and also to the study of finance within government and role of the government in the economy. Within academic settings, public finance is a widely studied subject in man ...

, internal debt or domestic debt is the component of the total

government debt A country's gross government debt (also called public debt or sovereign debt) is the financial liabilities of the government sector. Changes in government debt over time reflect primarily borrowing due to past government deficits. A deficit occu ...

in a country that is owed to lenders within the country. Internal government debt is complement is external government debt. The main sources of funds for internal debts are

commercial bank A commercial bank is a financial institution that accepts deposits from the public and gives loans for the purposes of consumption and investment to make a profit. It can also refer to a bank or a division of a larger bank that deals with whol ...

s and other

financial institution A financial institution, sometimes called a banking institution, is a business entity that provides service as an intermediary for different types of financial monetary transactions. Broadly speaking, there are three major types of financial ins ...

s. Internal public debt owed by a government (money a government borrows from its citizens) is part of the country's national debt. It is a form of

fiat Fiat Automobiles S.p.A., commonly known as simply Fiat ( , ; ), is an Italian automobile manufacturer. It became a part of Fiat Chrysler Automobiles in 2014 and, in 2021, became a subsidiary of Stellantis through its Italian division, Stellant ...

creation of

money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money are: m ...

, in which the government obtains finance not by creating it ''de novo'', but by borrowing it. The money created is in the form of treasury securities or

securities A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...

borrowed from the

central bank A central bank, reserve bank, national bank, or monetary authority is an institution that manages the monetary policy of a country or monetary union. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the mo ...

. These may be traded but will only rarely be spent on

goods In economics, goods are anything that is good, usually in the sense that it provides welfare or utility to someone. Alan V. Deardorff, 2006. ''Terms Of Trade: Glossary of International Economics'', World Scientific. Online version: Deardorffs ...

and services. In this way, the expected increase in

inflation In economics, inflation is an increase in the average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...

due to the increase in national wealth is lower than if the government had simply created the money ''de novo'' and increased the more liquid forms of wealth (i.e., the money supply).

References

Further reading