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What is Quantitative Easing?

Quantitative easing (QE) refers to a policy of increasing the money supply (literally printing money) in order to keep the economy more liquid and to allow banks to continue to loan to each other with low interest rates. The policy was adopted by the world’s central banks following the financial crash and contributed a huge amount of cheap money to the financial system. While QE initially provided much needed liquidity, it’s ongoing use has had consequences globally, economically and socially but much still to be seen.

Printing money might not always be the best strategy

Printing money might not always be the best strategy

Quantitative easing is typically done when a central bank buys government and corporate bonds, injecting money into the system while expanding the centrals banks’ balance sheet.  Banks also keep interest rates low or even negative so as not to over pressure the government with high repayments. The resulting ‘cheap money’ is a short term fix for an ailing indebted economy, but is also linked to inflation as an excess money supply and low rates of return on loans means producers seek returns on goods and services by raising prices.