Can quantative easing be summarized as "The state prints cash to pay its debt to private sector"?

Question

I find that most sources describe quantitative easing in an overly complicated way that obscures what it basically means.

As far as I understand a central bank is a public entity owned by a state, so I don't see much point in distinguishing a state entity from a central bank entity.

Therefore, I tend to find that the traditional descriptions like "the central banks buys government bonds from private banks in order to inject money in the economy" are ridiculously convoluted and funny.

As far as I understand, if I have a government bond, it is a promise that the state will pay me back some money at some point. So when I'm hearing "the central bank buys government bonds", all I'm hearing is actually "the government is printing cash from nothing to pay me right now, and destroy its debt".

Is my interpretation correct? Why isn't my interpretation the standard official intuitive explanation of quantitative easing? Is it just for newspapers and bankers to sound "serious"?

Answer 1

the government is printing cash from nothing to pay me right now, and destroy its debt

That's not the whole story.

Any money coming out of the central bank is newly created money, and any money going in is existing money being destroyed.

When the central bank buys government bonds, the bonds don't disappear. They still collect coupon payments. Eventually, all the money collected on those bonds will be destroyed.

If we consider the central bank and the state the same entity, the government is printing cash from nothing to pay me right now, and destroy its debt destroy the money it owes over the time period of it's debt.

Answer 2

It is more like "the state prints cash to pay the private sector's debts" - which the private sector was planning to pay in the future, but now it can pay immediately.

Assuming that you subscribe to the idea that central banks are independent from governments, you should notice that the government bond is still outstanding. The government is still going to repay the bond money to the central bank, at which point the face value and coupons of the bond will be destroyed.

QE is a transaction between central banks and private banks. The private bank is going to receive some money in the future; the central bank prints money now, for the private bank, but the private bank gives up the right to receive the money in the future.

Private banks can make similar transactions (but without printing money). Citibank can buy a government bond from Wells Fargo, and we don't say "Citibank is paying the government's debt."

This is a temporary increase in the money supply, unless the bond issuer defaults, in which case the money is not destroyed and the increase becomes permanent. To keep the money supply raised, the central bank must continue performing QE.

Answer 3

Altough you are correct saying that the state "own" central banks, they should be independent from their government. This gives freedom to monetary policymakers from direct political or governmental influence in the conduct of policy.

Given that, I would say that your interpretation is a bit exaggerated and maybe biased somehow.

Quantitative easing (QE) is a monetary policy in which a central bank purchases government securities or other securities from the market in order to increase the money supply. This is made with newly created bank reserves, but doesn't mean that new currency (bills and coins) has been printed. In theory, with more liquidity, the domestic demand would increase and eventually promote economic growth. Then, the excess of liquidity is absorbed by the growth and inflation would remain low.

The problem is if the economic growth don't happen, there will be inflation.

Using a more informal language, it's correct to say that the government is creating money in the present, hoping that this fresh money will increase economic growth in the future.