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It’s QE day

Bank of England Pound note featuring Governor of the BoE Mervyn King © Matt Buck Hack Cartoons

Bank of England Pound note featuring Governor of the BoE Mervyn King © Matt Buck Hack Cartoons

Today the government of the UK and the Bank of England will start buying assets from themselves using imaginary, or invented, money.

The definition of quantitative easing below is from Wikipedia.

In very simple layman’s terms, the central bank creates new money out of thin air. It then uses this money to buy what is essentially an IOU, usually from the government. This money is credited to the bank account of the seller of the IOU. The bank can then use this money as a basis for creating more new money by increased lending.

There is an explanatory graphic available here from Faisal Islam at Channel 4 News and Robert Peston of the BBC muses on the possible consequences of all this here.

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