By: Richard Scoot
Hi Bill,
Re the Zonk theory.
As I understand it, see the following link, figure 7.2
The Bank of England has swapped out the Gilt cash flows with the Asset Purchase Facility at Bank rate. In other words the BOE is receiving interest at Bank Rate on its Gilt portfolio. Presumably the BOE has other liabilities on its balance sheet on which it is due to pay interest that match, more or less, the interest it receives from its loan to the Asset Purchase Facility. If the BOE held a non interest bearing Zonk instead of the loan it wouldn’t then be able to meet those interest rate liabilities on the other side of the balance sheet.
I might, quite possibly, have misunderstood and if so I apologise, but I am curious as to whether expunging the debt in the way you suggest is really possible.