Quantitative Easing ?

Delancey

I have searched for a thread relating to this but cannot find one - if it has been discussed before then I apologise.

Quantitative Easing is usually described by the likes of BBC Economics correspondents as '' basically it's the Bank of England printing more money '' , now I never got above Honours Economics in the Leaving Cert but I do know that traditional thinking is you print more money and you get higher inflation , keep doing it and you will suffer hyper inflation.

How do the Bank of England prevent inflation in these circumstances ? Are the BBC being grossly over simplistic in their explanation ?

Slippers 2

It's not printed on paper. Each bank has to keep an account at the central bank. The central bank buys assets from the banks and pays for them by typing brand new money into their accounts.

Money in accounts at the central bank is called central bank money. It is different from money in accounts at normal banks. This is called commercial bank money, because the commercial banks issue it themselves. Think of commercial bank money as tickets for central bank money (or as corporate bonds with put options attached if you know some finance). If you want to make a payment to an account at a different bank you cash in some of your tickets and the bank transfers the appropriate amount of central bank money from their account at the CB to the CB account of the other bank. The other bank then issues the right amount of their own commercial bank money and puts it in the account to which you were making the payment.

If you want to make a payment to an account at your own bank you pay with the tickets themselves. The bank just moves them from your account to the receiver's.

One reason you won't necessarily get inflation is that just because the banks have more money in their CB accounts doesn't mean they'll issue more tickets and lend them to customers. When people and businesses around the country are already stuggling to keep up payments on the debt they have it is difficult for banks to find borrowers to whom they want to lend more.

Wikipedia is always a good starting point: en.wikipedia.org/wiki/Quantitative_easing

Delancey

Many thanks for the answer and Wiki tip , hmmm - I have to say the BBC seem to be oversimplifying things somewhat...