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It is precisely in times of crisis that the value of a strong state and sound monetary systems becomes apparent. The novel coronavirus that broke out in Wuhan, central China, in late 2019 is racing around the globe at a speed unprecedented in modern times. First it infected Wuhan and Hubei province, then jumped to Iran and Italy. From here it was spread throughout Europe. The SARS-CoV2 virus does not only cause the lung disease Covid-19. It has also infected the globalised economy. Meanwhile, many analysts expect that recovery will not be achieved until 2021. The massive economic upheavals are accompanied by calls for financial aid. For weeks now, the term Quantitative Easing (QE) has been heard more frequently. What is behind it?

Definition of Quantitative Easing: ECB pumps money into the market?

In times of crisis, economic theory and economic terms pop up like mushrooms in media reports. This was the case in the crisis following the collapse of Lehman Bank. In 2020, too, similar developments are on the horizon. Flushed to the top - especially in the economic magazines - is quantitative easing. As long as the health effects of the new type of coronavirus play the main role, such technical terms will not yet feature quite so prominently in the daily newspapers.

Investors in Exness mt4 who follow the markets will have read the term frequently in recent weeks. And even ordinary consumers are likely to come into contact with it more often soon. What is behind it? The English term Quantitative Easing can be translated into German as Quantitative Easing.

Central bank becomes a major investor

For non-economists, this term is still meaningless. Ultimately, it refers to a form of monetary policy with which central banks influence the financial system. In principle, central and central banks have several options for influencing the money market. One option is to raise or lower key interest rates. However, due to the crises in the 2000s, the ECB has already exhausted this element for the euro area.

With the help of quantitative easing, the central bank strives to further control the flow of money. This involves the use of unconventional measures. Background: Central banks inject liquidity into the market by buying up bonds. The central bank buys these bonds - or fixed-interest securities - from commercial banks.

No increase in the money supply

Unlike measures to stimulate the markets - such as helicopter money - which have been discussed repeatedly in recent months, quantitative easing relies on indirect influence. The aim is not to increase the money supply. Ultimately, the whole thing can be seen as an exchange in principle. Commercial banks exchange their fixed-interest securities with the central bank (in the case of the EU, this is the ECB) for central bank money.

Why this trade? Quantitative easing influences money supply growth and is intended to have a stimulating effect on the economy. Background: Through this form of monetary policy, the ECB serves various channels of action.