What Is the Meaning of Quantitative Easing?

Quantitative easing--often referred to colloquially as "printing money"--is a highbrow term used to describe the injection of money into the economy as a stimulus for banks to lend to consumers and businesses.

How Quantitative Easing Works

Essentially, the process of quantitative easing involves a central bank, such as the Federal Reserve, buying bonds--debt securities issued by the government and companies--and other assets from commercial banks. The money from the sale is credited electronically to the commercial banks' accounts and can be lent to customers.

Does Quantitative Easing Work?

Quantitative easing has only really be tested once--in Japan between 2001 and 2006--and, although it resulted in moderate economic growth, growth was not maintained after the end of the program and the results were inconclusive.The Federal Reserve and the Bank of England have both embarked upon programs of quantitative easing in recent years, but the results remain to be seen.

Dangers

The main danger of quantitative easing is that as the economy sparks into life, inflation--that is, a general rise in prices across the economy--spirals out of control and negates the effect of injecting money into the economy in the first place.

References

• The Times: What is Quantitative Easing?
• Bank of England: What is Inflation?
• Telegraph: Quantitative easing