Wednesday, 17 November 2010

What is quantitative easing?

Quantitative easing (QE) is a monetary policy used by some central banks to increase the supply of money by increasing the excess reserves of the banking system, generally through buying of the central government's own bonds to stabilize or raise their prices and thereby lower long-term interest rates.

This policy is usually invoked when the normal methods to control the money supply have failed, i.e., the bank interest rate, discount rate and/or interbank interest rate are either at, or close to, zero. It has been termed the electronic equivalent of simply printing legal tender. (Source: Wikipedia)

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