Question

Explain the following method of redemption of Public Debt:

Debt conversion

Answer 1

Under this system, a high-interest debt is converted into a low interest debt. Sometimes, it happens that the ruling rate of interest is high when the Government contracts the debt. But after some time, the interest rate in the market falls. In such a situation, the government converts its old but high debt so that it reduces the burden of interest on the community. Further, the low-interest rate on public debt also operates in the direction of reducing inequalities in distribution.