Japan, the Eurozone, the USA and the UK have all run programmes to buy up state debts through Central Bank action. In each case they buy the bond, but keep it, pretending that the state still owes the money. They find a way of accounting for the fact that they pay the interest due on the bond to themselves – it goes from one government account to another, as the Central Bank is a creature of the state. It may have a little more meaning in the case of the ECB, buying up the debts of a range of countries. When the bond falls due for repayment they repay themselves, and normally reinvest the money in another bond they buy from the private sector.
In the case of Japan the purchase programmes have been particularly large and long lasting. There with state debt at a massive 230% of GDP they have avoided a problem meeting the interest costs of the debt by the twin effects of QE. Rates are now tiny or negative on new debts incurred. More than one third of the total state debt is now owned by the state itself through the Central Bank. The Japanese now have various options. They do not seem ready to simply announce they are cancelling all the debt they owe themselves, as they could do. They might find a half way house. They could, for example, convert all the state debt they own into irredeemable or ultra long non interest bearing debt, which is almost the same thing as cancelling it though it might look more prudent to some.
In the Euro area the latest substantial programme is running at Euro 80 billion a month, mainly government bonds. The authorities already own Euro 875bn of bonds. In the UK the Bank has decided to add £60bn to the stock of £375 bn they already own, out of a total state debt of £1.7tn. The US owns 12.8% of the stock of US Treasury bonds issued. All this means the actual indebtedness of these advanced countries is lower than the gross figures. The stress of having so much debt is doubly reduced, by the very low interest rates they now have to pay people and institutions that do lend them money, and by the fact that they owe so much to themselves.
So far this process has not triggered worrying domestic inflations in the way you might expect, thanks to the weak state of many commercial banks over the banking crisis, and the fiercer controls against extra lending on the back of the money in circulation. There have been some inflationary pressures from weak currencies, which could be brought on by relatively looser money and higher rates of QE. All the main countries in recent years seem to have favoured some decline in their currency, or have been unwilling to do anything to stop it. They cannot all devalue at the same time against each other. It will be interesting to see which if any of these authorities makes the next move in these unusual changes to the cost and ownership of state debts.