Bank of England defends quantitative easing
Monday 9th March 2009, 10:34AM GMT.
The Bank of England’s deputy governor Charles Bean has said the central bank plans to eventually reverse its policy of quantitative easing to prevent runaway inflation.
Writing in the Daily Mail, Mr Bean said quantitative easing, a way of injecting £75 billion into the economy, will help speed up Britain’s recovery.
“Creating new money in this way might sound too good to be true,” Mr Bean said.
“Indeed in normal times an injection of extra money of this magnitude might be expected to lead to too much money and spending in the economy and a rise in inflation.
“But right now, there is not enough money and spending in the economy and that is what we need to rectify.”
The policy allows the Bank of England (BoE) to buy assets from banks without the Treasury issuing new bills. It is hoped the cash will boost the value of these assets and also provide banks will more available funds for lending.
Reversing the policy to prevent prices rising too fast can be “easily accomplished” by selling the assets back to the private sector.
The Bank will be monitoring spending in the economy carefully to time its next step, Mr Bean added.
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