In the complex world of finance, the term "Quantitative Easing" (QE) has become a buzzword, resonating through the corridors of central banks and financial markets alike. This FXOpen article seeks to bring some clarification to the concept, exploring what quantitative easing is, its purpose, and, specifically, its implications for the dynamic realm of forex markets.
What Is Quantitative Easing?
Traders have been meeting the abbreviation “QE” all across financial news articles and analyses in the past years. But what does QE stand for? QE is short for quantitative easing, a term that describes the central bank's approach to increasing the money supply. At its core, quantitative easing is a monetary policy tool employed by central banks to stimulate the economy when conventional methods fall short. In simpler terms, it involves the central bank injecting a substantial amount of money into the financial system.
Quantitative Easing Explained
Quantitative easing is often initiated when interest rates are already at or near zero, leaving central banks with limited traditional tools to spur economic growth. In such circumstances, instead of lowering interest rates further, central banks opt for the unconventional route of increasing the money supply. This process involves the central bank using specific instruments and market interventions to lower long-term interest rates, encourage borrowing and investment, and ultimately boost economic activity. By flooding the financial system with liquidity, central banks aim to prevent deflation, support employment, and stimulate lending.
Main Instruments for Conducting Quantitative Easing
After explaining the meaning of quantitative easing, let’s discuss the instruments that central banks employ to achieve specific objectives within a broader framework.
Read full story visit FXOpen blog