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"?


1 Answer 1


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.

  • $\begingroup$ Yeah here I am more or less considering "state" "government" "public" "central bank" as the same thing. Its just that in practice I don't really see what independence means. The central bank director is still a citizen of its country and wants to do good to its country. Even if CB director doesn't have a manager, CB director and head of state, have the same will to make their country a stable and strong economy. $\endgroup$
    – jam
    Mar 6, 2020 at 15:04
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    $\begingroup$ So the net effect is: more money is printed (digital reserves count as printed, for this purpose, since they are interchangeable with physical cash) but it doesn't pay off government debt, it just increases demand for the debt. $\endgroup$
    – user253751
    Mar 6, 2020 at 15:40
  • $\begingroup$ It increases the monetary base, but that need not necessarily translate into commesurate increase in money aggregates. During crises that link is weakened. Also the velocity of money is decreasing too. Those two (low velocity and weakened link) are deflationary forces. $\endgroup$
    – Al Guy
    Apr 5, 2020 at 15:51

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