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Quantitative Easing (QE) is often said to be the ‘printing of money’. More accurately, quantitative easing is the injection of digital money into the economy by the Central Bank for the purpose of purchasing bonds.
QE has been highly used in the aftermath of the 2008 financial crash and during COVID-19 pandemic, to assist the banking system and prevent a great depression, by slipping money back into the economy.
This is achieved as institutions such as commercial banks, insurance companies and pension funds can sit on more money from the bond interests due to the Central Bank purchasing in large quantities. This helps to drop interest rates on loans offered to the public, as financial institutions sit on more money and thus more willing to lend. The public are able to borrow money at more preferable rates which boosts spending and investment in the economy by making the cost of borrowing cheaper.
QE is therefore deployed to stimulate economic growth and activity. It is an unconventional method of stimulating economic growth via monetary policy.
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