（1） Quantitative easing: a monetary policy by the central bank increase the money supply through open market operation mode can be regarded as "nothing" to create a specified amount of currency can also be simplistically described the increase in printing money. The actual operation, the central bank through open market operations to financial market purchase of bonds, securities and other instruments, so that each individual bank in the clearing accounts of the central bank to increase the money supply, and indirectly for the banking system and inject new the flow of funds.
"Quantitative easing" in the "Quantitative" means: will create a specified number of the amount of currency. "Easing ": means to reduce the pressure on bank funding.
The central bank created money to buy government bonds on the open market, lend money to the deposit-taking institutions, from banks to buy assets.
These measures will lead to the decline in government bond yields, reduced the overnight interbank interest rate, the bank therefore has a large number can only earn a very low interest assets. The central bank expects the individual banks will be more willing to offer loans to enterprises, in order to earn a return and relieve the financial pressure of the slow market.
Quantitative easing monetary policy has been loose, or purchase assets, as inflation and devaluation (such as Treasury bonds), a tendency to make the currency devaluation. Quantitative easing is likely to increase the risk of currency devaluation the government is usually in the economy facing deflation, the introduction of quantitative easing measures. Continued quantitative easing, will increase the risk of inflation.
（2） The Government's quantitative easing policy can stimulate the number of loans:
Banks to maintain a certain proportion of the reserve, the remaining funds can be used as lending to enterprises. From the process of quantitative easing, the Bank increased deposits by borrowing, to re-create more of the money supply, the so-called deposit multiplier effect (deposit multiplication).
For example, assume that the deposit reserve requirement is 10%, quantitative easing to create $ 10,000, the final money supply is $ 100,000.
Quantitative easing measures to provide adequate liquidity to local banks in the interbank market, at least to reduce the cost of borrowing in the financial market, the government eventually expect all borrowers can benefit from in order to support the overall operation of the economy. Quantitative easing measures to provide adequate liquidity to local banks in the interbank market, at least to reduce the cost of borrowing in the financial market, the government eventually expect all borrowers can benefit from in order to support the overall operation of the economy.
In general, the implementation of quantitative eases, so that the overall economy, smooth running, and help alleviate the economic downturn impact.
Quantitative easing measures have been described as "start printing money machine" quantitative easing measures in fact just adjust the accounts on the computer.
However, for a country to implement quantitative easing, must be its currency control, for example, within the euro zone, the individual countries, but cannot unilaterally launch of quantitative easing measures.
（3） Examples of the implementation of quantitative easing measures:
To cut interest rates to increase the money supply does not work, the central bank may introduce quantitative easing measures; usually when interest rates near zero. Bank of Japan in the early 2000s, the implementation of quantitative easing measures to deal with deflation. The global financial crisis began in 2007, the U.S. Federal Reserve Ben Bernanke, the use of the quantitative easing policy to tackle the crisis. Britain also use quantitative easing policy as a financial policy to reduce the impact of financial crisis.
（4）What is quantitative easing of monetary policy?
The quantitative easing of monetary policy called "quantitative easing" monetary policy.
Generally speaking, the central bank in the establishment of monetary policy, the interest rate target on specific short-term interest rates above the level of the central bank by bank funds market, injected or pulled out of funds to achieve the funds rate, in the central bank rate target position.
At this point, the central bank hopes that the regulation is: the cost of credit.
Quantitative easing means: monetary policy-makers, policy concerns, from the price of money to control the banking system, steering the amount of money. Monetary policy objective is to ensure that monetary policy remained in a relaxed environment.
For the purposes of this policy, the "quantity" means that the money supply, and "loose" said the quantity of money there will be many, of course, the quantitative easing of monetary policy, there are specific indicators.
"Quantitative easing" monetary policy, often means that the government will abandon the traditional monetary policy, for the central bank, they cannot either control the price of funds, can control the amount of funds.
（5）Why is the Government to take "printing money" to cope with financial turmoil?
Countries to deal with the monetary authorities, by printing money to buy government bonds or corporate bonds in the financial markets, a large injection of funds to financial markets, the aim is to reduce market interest rates to stimulate economic growth.
The implementation of the quantitative easing policy, usually means: central banks, conventional monetary policy to stimulate the economy invalid, was the management of the monetary authorities adopted because it is "unconventional" monetary policies.
（6）quantitative easing monetary policy in Japan:
The countries of the world's first quantitative easing monetary policy to cope with deflation are the Japanese government.
In 2001, Japan's central bank, made an amazing move, they have adopted a new monetary policy tools. At that time, the Japanese government on the basis of the zero interest rate, to implement further expansionary monetary policy, a substantial increase in the money supply, used to deal with the economic level, the emergence of deflation. Prior to this, the world, there is no any country, ever used this kind of policy to increase the money supply.
Japan is this: a lot of excess funds injected into the banking system, so that long-term and short-term interest rates are at a low level, the purpose is to stimulate economic growth and fight deflation.
（7）Quantitative easing policy, the role of stimulating the economy out of deflation, from two to reflect:
The first aspect is: the low interest rate environment, conducive to business, keeping costs at a low level, but also conducive to promoting consumption, which play a positive role in promoting economic growth;
On the other hand, adequate funding, can also be saddled with a large number of non-performing loans of Japanese banks, do not worry about the lack of liquidity, and to resolve non-performing loans, to take more proactive action to promote financial sector, even other loss industry, structural regroup.
Japan is the world's first monetary easing, to cope with the financial crisis in the country, and by practical experience in Japan, can be proved: the financial crisis will be greatly undermined the confidence of the financial sector and financial markets. Financial markets, "deleveraging" going through the process will be very long, in a specific period of time, all financial transactions of the financial markets will be very difficult to operate normally;
In addition, due to the globalization of the economy and the currency market liberalization, a country, the unlimited increase in the supply of liquidity may not be able to stimulate the local banking sector to the national enterprise funds to lend. That is, when the rate of return of capital, foreign and domestic differences, the funds would not hesitate to choose to escape outside.
(8) Quantitative easing monetary policy, the impact of the global economy:
Quantitative easing monetary policy is a double-edged sword. Because the implementation of quantitative easing monetary policy, the Government will inject large amounts of cash to the financial markets, these initiatives will help alleviate the financial markets, shortages of funds to help the economy return to growth.
However, from the long-term point of view, will become a hidden danger of inflation, in the case of stagnant economic growth, perhaps, it will cause stagflation.
In addition, the quantitative easing of monetary policy, but also led to sharp depreciation of domestic currency to stimulate the country's exports at the same time, deterioration of the economic form of the relevant trade body, leading to trade friction between the country and other countries.
For global economic hegemony of the United States, the implementation of this radical quantitative easing monetary policy, the U.S. and global economy, should not be underestimated.
(9) Quantitative easing monetary policy, planted the hidden dangers of global inflation:
Quantitative easing monetary policy, in essence, in the case of out of the real economy needs to start printing money machine, enter the liquidity to financial markets.
Lack of market confidence and investment shrinking, quantitative easing monetary policy for the release of liquidity to the market, does not immediately lead to inflation, but once the economy turned better, to restore investors' confidence, excessive release of liquidity, they may translate into inflation.
Especially for the United States dollar is the world's reserve currency, but also the world's major commodity pricing, are in U.S. dollars as the base. U.S. Federal Reserve, the implementation of quantitative easing monetary policy will lead to the sharp depreciation of the dollar, giving rise of a resource, commodity prices, planted the hidden dangers of global inflation.
In addition, the huge U.S. Fed to buy bonds pulled down the dominoes.
Economies of other countries, in order to prevent their currencies relative to the U.S. dollar and the appreciation of the impact on the local export industries, further deterioration of the national economy, therefore, these countries will follow the implementation of quantitative easing monetary policy, further exacerbating the various countries, the future inflationary pressures.
This is why the short term, quantitative easing monetary policy will be popular in the reasons of the world's major economies. Quantitative easing monetary policy, cannot make the U.S. economy to the path of recovery, the economic downturn will lead to the emergence of stagflation situation.
(10) Quantitative easing monetary policy will worsen the economic situation of the relevant trade:
Quantitative easing monetary policy, the most direct expression of one is to make the substantial devaluation of the national currency, although there are beneficial to the country's export industry, but also lead to the countries of the economic system, currency appreciation.
For example: the U.S. Federal Reserve announced the date of the capital infusion program, the world's major currencies, as opposed to the U.S. dollar, are the sharp appreciation, of which: euro appreciation of 3.5%, 2.4% appreciation of the yen, the pound appreciated by 1.6 percent, Canada currency appreciated by 1.7 percent.
As a result, will be weakened, and the relevant trading system, the ability to export to the United States, especially for those in financial crisis, export-oriented countries of emerging economies.
Britain, the United States, Japan and other major global economies, a large number of quantitative easing monetary policy, a worse blow to the national economy and may lead to the associated countries, each other's trade friction.
(11) The U.S. Federal Reserve, a large purchase of government bonds will be reduced, corresponding to the country's foreign exchange value of the assets in U.S. Treasury bonds held:
The financial crisis originated in the United States.
However, due to the powerful economic strength and unique international status, the U.S. debt was due to hedging, thus greatly speculators welcome.
Many governments, including China, the country's foreign exchange assets in U.S. Treasury bonds, occupy an important position.
The U.S. Federal Reserve aggressively buy U.S. treasury bonds, pushing up U.S. Treasury prices, however, lower yields, so that the holders of the country's foreign exchange assets of U.S. Treasury bonds, there is a very large devaluation risk.
The United States to implement quantitative easing monetary policy, and that day: on March 18, the U.S. benchmark l0-year government bond yields fell from 3.01% to 2.5%, creating the largest single-day decline since 1981.
For the United States, the depreciation of the dollar and bond yields lower, will lead to huge amounts of foreign exchange funds, outflows from the United States, the U.S. economy is still in financial crisis, also had to face the harsh reality.
The quantitative easing policy is a very radical policy, although beneficial to the help of deep financial crisis in developed economies to ease the tight credit situation, increasing the momentum of economic expansion.
However, look at the overall situation on the global economy, the world's major economies, especially the United States to implement quantitative easing monetary policy, is " a dog in the manger" behavior, it planted the seeds of global inflation, and may lead to export-oriented, new economies, each country's economy, further reducing the foreign currency reserve assets. These countries have to face the national currency, the sharp depreciation of generation.
(12) U.S. Fed, quantitative easing monetary policy, the impact of China's economy:
In the next period of time, with the international financial institutions “to the gradual end of the deleveraging process”, the U.S. Federal Reserve injected liquidity to financial markets, through various channels, flows to emerging market countries, including China.
Meanwhile, the U.S. federal funds rate has fallen to a level close to zero interest rates, a few days ago China's one-year deposit interest rate, after four interest rate cut to 2.25%, still much higher than the U.S. federal benchmark interest rates in the short term, the United States Federal Reserve Board, to increase the possibility of interest, will not be great, the interest gap between the situation in China and the United States will continue to maintain.
In this case, short-term international capital flows into China trend will continue.
However, once the U.S. economy into a sustained recovery, the U.S. Federal Reserve must gradually withdraw from the quantitative easing policy, and will gradually tighten the money supply. Interbank market interest rates and the federal funds rate will rise.
These initiatives will make the dollar, and will lead to some arbitrage traders leave the market.
Once the U.S. dollar stabilized strong, then rise in Treasury rates, commodity prices will fall sharply, asset bubbles may be followed by blasting.
A large number of speculative capitals will be followed by withdrawal, resulting in assets, the sharp fluctuations in commodity prices, China's financial stability, and laid a huge risk.
In the 1990s, the Southeast Asian country's asset bubble burst, thereby triggering the financial crisis. This is a profound lesson, investors must learn a lesson.
Quantitative easing monetary policy, increase the volatility of the dollar, an increase of RMB exchange rate mechanism, the difficulty of reform. July 21, 2005, since the exchange rate formation mechanism reform, the RMB exchange rate, seems to have occurred a significant change.
However, from July 2008 to March 2009, the financial crisis, a sharp deterioration in international financial markets, investors, risk aversion, international financial institutions and enterprises have the funds to withdraw the United States or converted into U.S. dollars of assets, leading to the dollar mainly currency exchange rates, to keep the appreciation trend.
In these circumstances, the RMB exchange rate, again followed by the dollar's exchange rate regime, the fluctuations of the RMB against the U.S. dollar to maintain fluctuated in the range of 6.82 to 6.84.
In late March 2009, the U.S. quantitative easing monetary policy was launched in the U.S. inflation is expected to rise, increased risk of debt financing, leading to the financing of the dollar carry trade is active, together with the global economy returns to rise, so that the U.S. dollar as hedging instruments demand waning, originally preservation funds dollar-denominated assets, re-chase the other high-yield return on assets, the dollar again, showing a depreciation trend.
With the weak U.S. dollar, the RMB exchange rate since March 2009 after seven consecutive months, showed a depreciation trend of the nominal effective exchange rate and real effective exchange rate, depreciation of 9.17% and 7.67% respectively.
The context of the depreciation of the dollar, and the influx of short-term international capital, RMB appreciation pressure, appeared again, the Chinese government, and less likely to choose the sharp appreciation of the strategy.
First, the sharp appreciation of the way, the hot money in a very short period of time will be able to get the appreciation of the benefits the cost of the hot money profits will be greatly reduced.
Secondly, it is difficult to find a point of equilibrium exchange rate, because China cannot be calculated, how the rate of appreciation is an appropriate level.
Assume that China has adopted the strategy of the sharp appreciation of the RMB exchange rate is likely to occur beyond the adjustments, the reversal of capital flows, is very risky.
Assumptions one-off revaluation, if not rise to the appropriate location, financial markets, it is possible, there will be the next expected appreciation, and this will cause too much funds inflow.
No matter what kind of circumstances, will result in capital poured into China or rapidly withdrawing from the Chinese, the phenomenon that results in enormous financial risk.
Furthermore, the sharp exchange rate appreciation, will be a big impact on China's export-oriented enterprises, the economy may have fallen sharply, triggering a serious unemployment problem.
The United States launched an unprecedented quantitative easing policy, the most direct impact of monetary policy to China: China can only be adjusted passively follow the United States.
Assumptions, China does not follow the U.S. and global quantitative easing policy, the RMB will likely have a greater appreciation of the pressure to bring more capital inflows.
If China followed by the policy of the United States, due to family and financial institutions in China, does not exist "deleveraging", so the Chinese money supply will be adequate.
Therefore, regardless of China to follow, or to give up to follow U.S. monetary policy, ample liquidity situation, then when this happens, it will inevitably to promote the emergence of the commodity or asset price bubbles.
Medium and long term, due to the savings of the Chinese people is greater than the amount of investment, the trade surplus remains high, these two factors, a longer period of time, are difficult to change.
The short term, hot money inflows into China; countries other than China, commodity supplemental and inventory requirements, continue to drive Chinese goods, and increasing exports; global capital flows to China, China's foreign exchange reserves, accelerating the rise, the value of the RMB appreciation pressure is greatly increased. Liquidity surplus funds will be pushing up commodity and the price level.
The RMB exchange rate re-follows the dollar's exchange rate mechanism, according to Mundell's trilemma, when cross-border flows of funds in case there is no way to get effective control, the Chinese central bank will, in part the loss of monetary policy autonomy.
三元悖論(The Impossible Trinity)，也稱三難選擇
Trilemma (The Impossible Trinity), also known as the trilemma
According to Mundell Trilemma, a country's economic objectives are three kinds
According to Mundell Trilemma, a country's economic objectives are three kinds
① The National monetary policy independence;
② Exchange rate stability;
③ Full capital mobility；
Only three selected second, but not three ways.
Exchange control policy in China, only to follow the U.S. currency's exchange rate policy, simultaneous adjustment.
When the U.S. Federal Reserve to increase the signal of interest, is very clear, even hiked interest rates, the Chinese central bank will increase deposit and benchmark lending rate.
不知從哪時候開始，投資，已經變成，風險與避險之間，二擇其一的遊戲。金融市場的投機者，會不約而同地，購買高風險（risk on）的金融產品，例如：股票、商品、高息債券、澳洲貨幣，紐西蘭貨幣等。令到上述投資項目，不斷上升；相反，當避險情緒高張的時候，金融市場的投機者，便又會轉移投資目標，一窩蜂地集體購買（risk off）美元、美國國債、日本貨幣等。
I do not know where to start, investment, has become a risk and hedging, select one of the game. Financial market speculators, coincidentally, the purchase of high-risk (risk on) the financial products, such as: stocks, commodities, high yield bonds, the currency of Australia, New Zealand currency.
So that the investment projects, rising; In contrast, when risk aversion, financial market speculators, in turn will transfer the investment objectives, collective to buy U.S. dollars (risk off), and U.S. Treasury bonds, the Japanese currency.
Assumption: you are an investor you will be how to face?
The U.S. economy began to regain their upward trajectory?
In Chapter 20 we will discuss the above topics.
My blog published on this site all content is purely personal opinion to share, did not constitute investment advice for any person.