21 December 2019

Q is for Quantitative Easing: an emergency policy for the decade that growth forgot

A photo illustration shows British sterling notes held against a backdrop of the Bank of England, in London, on March 5, 2009. The Bank of England said Thursday it had cut interest rates to a record-low 0.5 percent, adding it will create 75 billion pounds (106 billion dollars, 84 billion euros) under a "quantitative easing" plan to boost lending. "The Bank of England's Monetary Policy Committee today voted to reduce the official Bank Rate paid on commercial bank reserves by 0.5 percentage points to 0.5 percent," the BoE said in a statement. AFP PHOTO/Carl de Souza (Photo credit should read CARL DE SOUZA/AFP via Getty Images)

In the autumn of 2008, as the global financial crisis intensified, governments and central banks were confronted by the threat of a second great depression. They responded with an arsenal of higher public spending, tax cuts and record-low interest rates, and embarked on a monetary experiment that would have profound consequences over the next decade: quantitative easing (QE).

Colloquially known as “printing money”, QE in fact refers to electronically-created money used by central banks to buy governments bonds and other assets from financial institutions (it was pioneered by Japan in the early 2000s). By injecting hundreds of billions in new money into the economy, the programme is intended to reduce the interest rates on government bonds as well as on loans offered to households and businesses. As individuals and corporations are incentivised to borrow and spend more, they help stimulate economic growth and job creation.