The internal debt is that part of the public debt that is in the hands of the citizens themselves in the country. That is, that public debt in which the creditor is a citizen in the country.
Internal debt refers to public debt. In this sense, when we speak of internal debt we are referring to the part of public debt issued by the State in which the creditor is a citizen of the territory. That is, that debt that, due to the fact of having bought it, is in the hands of the citizens of a territory.
Internal debt is generally made up of obligations, bonds and bills owned by the citizens or companies of a country.
Difference between domestic debt and foreign debt
When we talk about internal debt and external debt, we are talking about the two types of debt that can be found when we refer to the creditor. In this sense, both concepts are in opposition, which indicates that they are two related concepts, but that they reflect precisely the opposite.
In this sense, both concepts refer to public debt, but being internal or external differentiates them in relation to the creditor, so we are going to explain it below.
The internal debt, as we have been commenting, is that part of the national debt that a country owns. One part, which is in the hands of the citizens. That is, one that has been acquired by the citizens of a country themselves.
On the other hand, the external debt refers to that part of the national debt that, unlike the internal one, is in the hands of buyers, creditors, foreigners. That is, public debt that has been acquired by buyers from territories other than the issuing country.
Characteristics of domestic debt
Internal debt is a type of debt that, due to its characteristics, is usually the one desired by different governments. In this sense, when, being a country, we issue debt, it is always more favorable for this debt to be acquired by a citizen of the country, instead of the buyer being a foreign citizen. However, this is not to say that governments do not want debt to be acquired by foreign citizens and countries.
Thus, the characteristics that define domestic debt and make it more attractive to the Government than external debt are various. First of all, it is the ease of trading in the local currency. In other words, the ease that a government represents to operate in local currency and not have to continuously manage fluctuations with foreign currency pairs.
Second, another characteristic, which, in turn, is closely linked to the previous one, is the expense it represents for the Government. An expense that is increased by the fact of having to pay foreign creditors. And we are not only talking here about the currency, but also about having to manage exchange rates, as well as transfers abroad to comply with the obligation.
Third, another essential feature is the ease and freedom of negotiating with internal creditors. An ease and a freedom that is not usually seen in the case of foreign debt. We could say, in this regard, that when it comes to our country, there is a greater connection to it. Therefore, we will always look for a stability that guarantees our well-being.
Fourth, to give one last example, domestic debt is also easier for banks to manage. We are talking about that when dealing with national issues, with national banks, if the creditor is national, it is easier for the entity to control the situation and carry out operations with the buyer of the title.
In addition to these, there are more characteristics that reflect the greater attractiveness of domestic debt. However, we consider these the essentials.