Financial repression is a term used to describe a policy environment where central banks and governments deliberately keep interest rates below the rate of inflation.
They do so because the central bank is willing to supply unlimited amount of credit, with sovereign guarantee, at repressed rates. This has the effect of boosting government coffers and/or effectively reducing debt, both public and private.
It’s impact:
It is a tax on savers as it transfers benefits from lenders to borrowers.
Financial repression can spur investment as it makes borrowing cheap.
In market economies with a developed financial system, where alternative avenues of investment are available, financial repression discourages financial savings.
