Method of Repayment- Repudiation:

Repudiation means refusal to pay a debt. But this is not a common practice or method of repayment. However, there are some countries which have resorted to this practice such as the Soviet Government in 1917 which repudiated the debt similarly some States in the USA before the civil war (1861-65) which repudiated the debts owed to the English citizens. Under this method the government refuses to repay the public debt and the liability for public debt is extinguished. In fact this amounts to confiscation of the property of debt holders to the extent of their size of debt. If the government adopts this method, it will be penalizing the wealthier and relatively wealthier class compared to other categories of people. In other words, it leads to inequity. In fact, other category of people, the non-bondholders, will be benefited through a possible reduction in taxation, as the government's obligation to pay interest will be reduced to the extent of repudiation. Moreover people invested their savings in Government bonds would suffer and people having equal amount in other forms of wealth would be benefited. The government's credit suffers and it would be very difficult to loans in future when government repudiates its debt.

If the government repudiates an external debt, it may lead to problems like facing economic sanctions by the creditor nation and even a war besides losing its credit at the international level. Under normal circumstances, no rational government will be resort to this method as it reflects the insolvency of the government. Generally governments use this method following social or political  revolution when they feel that it is almost impossible to honor the debt obligations.