More and more central banks seem to be embarking on the process of injecting money directly into their economy through expansion of their balance sheets, or ‘quantitative easing’ in the modern jargon.
Aggressive quantitative easing is underway
An increasing number of central banks are directly expanding money supply…
More and more central banks seem to be embarking on the process of injecting money directly into their economy through expansion of their balance sheets, or ‘quantitative easing’ in the modern jargon. Last month the Bank of England announced that it would buy £150bn of bonds, of which £100bn will be government securities. Last week, the Japanese central bank raised monthly purchases of government bonds to Y1.8tn and the US Fed said it would buy $300bn of longer dated US debt and $750bn of agency debt. This process of balance sheet expansion is simply one where central banks buy securities from the private sector or from the government without an offsetting sale of its own or government paper. In fact, it is not a new approach or even an unusual one; so unconventional it is not but it has been little used.
The Bank of Japan used it between 2001 and 2006 to try and end its financial crisis (it did not work) and the US Fed started buying private sector debt from September 2008 though not government debt. Currently, the ECB has not embarked on quantitative easing at all. It used to be more common practice to use this tool to both increase and decrease money supply as a way of controlling price inflation and influence economic growth but it went out of fashion because it became associated with excessively higher price inflation.