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What is quantitative easing, and how does it work?

Quantitative easing (QE), explained

Quantitative easing (QE) is a non-traditional monetary policy tool used by central banks, particularly when interest rates are already low and cannot be reduced further.

It was popularized during the 2008 global financial crisis when traditional monetary tools, like lowering interest rates, were insufficient to stimulate economic growth.

The main goal of QE is to boost the economy by increasing the money supply. This is achieved by encouraging banks to lend more and making borrowing cheaper for consumers and businesses. When central banks implement QE, they purchase government bonds or other securities from the market, injecting cash into the financial system.

Even though people sometimes say QE is like “printing money,” it’s not the same as making new physical cash. Instead, it increases the amount of digital money — meaning the balances held in bank accounts — in the economy. This isn’t cryptocurrency; it’s regular money created by the central bank and used by banks to lend more, which helps boost spending and investment.

QE can also raise the prices of assets like stocks and bonds because the extra money looking for returns drives demand higher. Governments also used QE during the COVID-19 pandemic to help keep the economy stable and support growth.