Central Banks Face Pressure to Bail Out Governments Amid Debt Crisis

Rising borrowing costs for governments and sovereign bond market strains are forcing investors to confront an uncomfortable question: will central banks be called on to help pay the bill?

Fiscal dominance, where a government leans on its central bank to buy bonds or support it in other ways because it can no longer manage on its own, has been considered taboo in wealthy countries for decades.

The concern is that if a central bank prints money to plug budget deficits, it risks stoking inflation and devaluing the currency, leading foreign creditors to flee.

However, ballooning debt burdens are prompting debate about where the line between fiscal and monetary policy should be drawn.