By: Mike Campbell
At some time in childhood, most of us looked at a copying machine and asked our parents why, if we were short of cash (and most people were) we couldn’t just print some more money. Our parents would have smiled benignly and explained that that would be called counterfeiting and would land us in jail. Clear enough, I always thought. But in the current recession, the UK central bank, the Bank of England decided to do just that. Permission was given for a policy to increase money circulation by injecting more cash into the UK economy. However, the cash was not available so the bank was simply allowed to print more money (well, the Royal Mint actually did the deed) – a process known as Quantitative Easing (QE).
The idea was to have more money in the system such that it could be lent to businesses and individuals for expansion plans, home purchases and the like. This would reduce the worst effects of the recession, if not actually trigger growth, it was hoped. The original plan for QE was to inject up to £150bn into the economy. In August, the Bank of England surprised many analysts by doubling the QE release for that month to £50bn. So is it working? According to data from the National Institute of Economic and Social Research, the UK economy grew by 0.2% in the quarter to August; there was also indication that UK manufacturing output was also up, so perhaps. The bank cautioned that the success of QE could not be judged for at least 9 months after the start, so we’ll just have to wait and see – but this is one financial measure that I wouldn’t advise you to try at home.
In trading against other major currencies yesterday, the UK Pound weakened slightly.
When I Do It, It’s Counterfeiting; When They Do It, It’s Quantitative Easing
DailyForex.com