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Repudiation of debt means simply that the government does not recognize its obligations and refuses to pay the interest as well as the principal. Repudiation is not paying off a loan but destroying it. Normally, a government does not repudiate its debt, for this will shake the confidence of the general public in the government. However, in extreme circumstances, a government may be forced to repudiate its internal or external debt obligations. For instance, internally, the country may be facing financial ruin, bankruptcy and externally it may be faced with shortage of foreign exchange. Generally, a government may not repudiate its internal debt lest it should lead to internal rebellion—those who have lent to the government
would obviously rise against the government. However, the temptation of a government to repudiate its external debt obligations may be strong at certain times. Of ail the methods of redeeming .debt, repudiation is the most extreme, but it is actually not redemption of debt at ail.
NatalieR answered the question on June 22, 2022 at 11:14
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