The idea of "debt fuelled" is quite misleading, in part because it implies that the funding is made possible by borrowing pre-existing funds. The concept of "debt" is also value-laden and is actually in this case not particularly helpful.
All new central bank facilitated government issued liquidity is offset by bonds as part of the mechanisms by which reserves are managed. Let's work through what actually happens. Firstly, the government decides to spend on “major national strategies” and “security capacity.” This means credits are going to appear in the deposit accounts of contractors, suppliers and other recipients at commercial banks. Secondly, commercial banks receive matching reserve credits at the PBOC when those payments are settled. This is new central bank money (reserves) created by the PBOC, increasing the monetary base. Thirdly, the commercial banks, in turn, create the corresponding deposit money in the recipients’ accounts.
The bond issuance is the “offset”, but not in a funding sense in the operational sequence. The Ministry of Finance issues the “ultra-long special treasury bonds” to absorb the newly created bank reserves and deposits from the private sector. This is primarily a monetary and interest-rate management operation, keeping the banking system from being flooded with excess reserves that could otherwise push interbank rates toward zero.
So in summary:
Step 1: PBOC marks up reserves.
Step 2: Commercial banks mark up deposits.
Step 3: Bonds are sold to drain those reserves.
The result of these operations is that Government has spent, the economy gets the resources, and the financial system has swapped some of its reserves for interest-bearing government paper.
The idea of "debt fuelled" is quite misleading, in part because it implies that the funding is made possible by borrowing pre-existing funds. The concept of "debt" is also value-laden and is actually in this case not particularly helpful.
All new central bank facilitated government issued liquidity is offset by bonds as part of the mechanisms by which reserves are managed. Let's work through what actually happens. Firstly, the government decides to spend on “major national strategies” and “security capacity.” This means credits are going to appear in the deposit accounts of contractors, suppliers and other recipients at commercial banks. Secondly, commercial banks receive matching reserve credits at the PBOC when those payments are settled. This is new central bank money (reserves) created by the PBOC, increasing the monetary base. Thirdly, the commercial banks, in turn, create the corresponding deposit money in the recipients’ accounts.
The bond issuance is the “offset”, but not in a funding sense in the operational sequence. The Ministry of Finance issues the “ultra-long special treasury bonds” to absorb the newly created bank reserves and deposits from the private sector. This is primarily a monetary and interest-rate management operation, keeping the banking system from being flooded with excess reserves that could otherwise push interbank rates toward zero.
So in summary:
Step 1: PBOC marks up reserves.
Step 2: Commercial banks mark up deposits.
Step 3: Bonds are sold to drain those reserves.
The result of these operations is that Government has spent, the economy gets the resources, and the financial system has swapped some of its reserves for interest-bearing government paper.