Financial repression in the XXIst century

Ricardo Reis

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Large stocks of public and external debt tempt policymakers to extract resources from their creditors. This article characterizes three broad forms of financial repression that serve this purpose. The first consists of direct taxation of the financial sector through levies on financial transactions, banks’ income, or pension-fund assets. The second is a sudden and sufficiently persistent devaluation of the currency. The third raises the demand for the non-monetary services provided by different types of government liabilities while keeping their supply scarce, thereby creating yield discounts. Reviewing historical experience, including recent years, the article concludes that each of the three often fails to deliver sustained revenues, even if they can sometimes be temporarily large. Financial repression is an alluring temptation with illusory gains: yielding to it may generate substantial efficiency losses and produce only limited revenue.

Keywords: twin debt problem; debasement; discounts on returns; convenience yields (search for similar items in EconPapers)
JEL-codes: E44 E60 F30 F41 H20 H60 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2026-07-22
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Published in IMF Economic Review, 22, July, 2026. ISSN: 2041-4161

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