Canceling government bonds held by a central bank creates no fiscal space, because the reduction in government interest payments is exactly offset by an equal reduction in the profits the central bank remits to the government.
Olivier Blanchard Economist; former chief economist of the International Monetary Fund The proposition is that the cancellation of the bonds held by the central bank would decrease the amount of interest payments and thus the debt service of governments. And indeed, it would. But it would have another effect—namely, to decrease the revenues of the central bank and thus the profits that the central bank turns in to the government. This second effect would be exactly of the same size as the first, and the net effect on the government budget constraint would be equal to zero. Fiscal Policy under Low Interest Ratesdirect.mit.edu · 1 Jun 2022All korrents from this piece
Their wordsThe proposition is that the cancellation of the bonds held by the central bank would decrease the amount of interest payments and thus the debt service of governments. And indeed, it would. But it would have another effect—namely, to decrease the revenues of the central bank and thus the profits that the central bank turns in to the government. This second effect would be exactly of the same size as the first, and the net effect on the government budget constraint would be equal to zero.