Its operation is that a country's monetary management institution (usually the central bank) purchases securities such as treasury bonds and mortgage bonds from commercial banks and other financial institutions through open market operations, so as to increase the funds of commercial banks in the settlement accounts opened by the central bank, inject new liquidity into the external banking system (become the monetary assets of external banks), and improve the money supply in the real economy environment.
The central bank uses money created out of thin air to buy state bonds in the open market, borrow money from deposit institutions and buy assets from banks. All these will lead to a decline in the yield of government bonds and interbank lending rates, leaving banks with a large number of assets that can only earn very low interest. The central bank hopes that banks will be more willing to provide loans to earn returns, so as to ease the financial pressure on the market.
When banks are already loose, or the assets they buy will depreciate with inflation (such as national debt), quantitative easing will tend to depreciate.
Because quantitative easing may increase the risk of currency depreciation, the government usually introduces quantitative easing measures when experiencing deflation. Continued quantitative easing will increase the risk of hyperinflation.
Under the partial reserve system, banks keep a certain proportion of deposit reserve, and the rest can be used for loans. With the increase of deposits in the process of quantitative easing, banks can borrow and create more money supply, that is, deposits double. For example, if the average liquidity of money is 10 transactions, the final money supply can be100,000 dollars for every10,000 dollars created by quantitative easing.
Quantitative easing provides sufficient liquidity for the local interbank market, greatly reducing the borrowing cost, and ultimately expects all borrowers to benefit to support the overall economic operation. Generally speaking, quantitative easing can support the overall economy and "help to alleviate or curb the impact of the economic downturn."
Although described as "printing money on mobile phones", quantitative easing is usually just to adjust computer accounts. To implement quantitative easing, a country must have control over its own currency; Therefore, individual countries in the euro zone cannot unilaterally introduce quantitative easing policies.
When lowering interest rates to increase the money supply is ineffective, the central bank may introduce quantitative easing measures; It usually occurs when the interest rate is close to zero.
United States of America
In response to the global financial crisis that began in 2007, Federal Reserve Chairman Ben Bernanke responded with quantitative easing, which ended at 20 14 and 10 three times later.
After the financial tsunami in 2008, the United States launched three rounds of quantitative easing, which greatly increased the monetary base.
Zero interest rate policy: Since August 2007, the Federal Reserve has cut interest rates 10 times, and the overnight lending rate has been reduced from 5.25% to 0% to 0.25%. Since February 16, 2008, the federal funds rate has been maintained at 0.25%.
Supplementary liquidity: From the outbreak of the financial crisis in 2007 to the bankruptcy of Lehman Brothers in 2008, the Federal Reserve rescued the market as the lender of last resort. Buy bad assets of some companies and launch a series of credit instruments to prevent excessive liquidity shortage in domestic and foreign financial markets and financial institutions. At this stage, the Fed will expand the target of supplementing liquidity (actually injecting money) from traditional commercial banks to non-bank financial institutions.
Actively release liquidity: From 2008 to 2009, the Federal Reserve decided to buy 300 billion US dollars of long-term treasury bonds and a large number of mortgage-backed securities issued by Fannie Mae and Freddie Mac. At this stage, the Federal Reserve began to directly intervene in the market and directly contribute to support companies in trouble; Directly act as an intermediary and directly release liquidity for the market.
Guide the market to lower long-term interest rates: In 2009, American financial institutions gradually stabilized, and the Federal Reserve gradually purchased long-term US Treasury bonds through open market operations. Through this operation, we try to guide the market to lower the long-term interest rate and reduce the interest burden of debtors. At this stage, the Federal Reserve gradually returned from the stage to the background, providing funds for the social economy through quantitative easing.
Britain, England
Britain also uses quantitative easing as a financial policy to reduce the impact of the financial crisis.
Japan
Japan is the first country to adopt quantitative easing monetary policy. 200 1 The Bank of Japan has made such an amazing move. They adopted a new monetary policy tool, a further expansionary monetary policy based on zero interest rate, to deal with deflation, which no country has tried before. Its practice is to inject a large amount of excess funds into the banking system, so that both long-term and short-term interest rates are at a low level, thus stimulating economic growth and fighting deflation.
The Abenomics implemented by Japan at the end of 20 12 is also a quantitative easing policy in essence.
Eurozone
20 15, 15122 October, the European central bank also announced that the euro zone will implement the European version of quantitative easing policy from March 20 15 to September 20 16.
20 15, 17 On February 4th, the European Central Bank announced that QE would be extended to March of 20 17, the main interest rate would be lowered from negative 0.2% to negative 0.3% again, and the period of quantitative easing would be extended for at least half a year, keeping the monthly bond purchase scale unchanged at 60 billion euros, and the total scale would be expanded to/kloc.
exert an influence
This kind of unconventional policy measure, which is almost universal at present, helps to curb the deterioration of deflation expectations to a certain extent, but it has no obvious effect on reducing market interest rates and promoting the recovery of credit markets, and may bring certain risks to the later global economic development.
In the first case, if the quantitative easing policy can take effect successfully, increase credit supply, avoid deflation and restore healthy economic growth, then generally speaking, stocks will outperform bonds.
In the second case, if the quantitative easing policy is carried out excessively, resulting in excessive money supply and the recurrence of inflation, then physical assets such as gold, commodities and real estate may perform better.
Third, if the quantitative easing policy fails to produce results and the economy falls into deflation, then traditional national debt and other fixed-income instruments will be more attractive.
Quantitative easing is likely to bring the consequences of hyperinflation. The central bank injects a lot of liquidity into the economy, which will not lead to a substantial increase in the money supply. However, once the economy recovers, the money multiplier may rise rapidly, and the liquidity that has been injected into the economic system will soar under the action of the money multiplier, and excess liquidity will pose a big problem in the short term.
Quantitative easing policy not only reduces the borrowing costs of banks, but also reduces the borrowing costs of enterprises and individuals. Now the world is hot and cold, and governments all over the world are implementing ultra-low interest rates, with the original intention of hoping for a rapid economic recovery. But as a result, the quantitative easing money that should have entered the real economy has flowed into the stock markets of some countries, such as the United States, and the stock markets have skyrocketed when the economic fundamentals are not good at all.
Quantitative easing monetary policy is a double-edged sword. The implementation of quantitative easing monetary policy will inject a lot of funds into the market, which will help alleviate the shortage of funds in the market and help the economy resume growth. But in the long run, in the case of stagnant economic growth, the hidden danger of inflation may cause stagflation. In addition, quantitative easing monetary policy will also lead to a sharp depreciation of the domestic currency, thus stimulating domestic exports, worsening the economic form of relevant trading entities, leading to trade frictions and so on. For the United States, the global economic hegemon, the impact of implementing this radical quantitative easing monetary policy on the domestic and global economy should not be underestimated.