<blockquote>
<p>the government is printing cash from nothing to pay me right now, and destroy its debt</p>
</blockquote>
<p>That's not the whole story.</p>
<p>Any money coming out of the central bank is newly created money, and any money going in is existing money being destroyed.</p>
<p>When the central bank buys government bonds, the bonds don't disappear. They still collect coupon payments. Eventually, all the money collected on those bonds will be destroyed.</p>
<p>If we consider the central bank and the state the same entity, the government is printing cash from nothing to pay me right now, and <strike>destroy its debt</strike> <strong>destroy the money it owes</strong> over the time period of it's debt.</p>

CC BY-SA 4.0
2022-07-19T15:37:40.960Z
2022-07-19T20:29:09.857Z
2022-07-19T20:29:09.857Z
Nishant George Agrwal
<p>It is more like &quot;the state prints cash to pay the private sector's debts&quot; - which the private sector was planning to pay in the future, but now it can pay immediately.</p>
<p>Assuming that you subscribe to the idea that central banks are independent from governments, you should notice that the government bond is still outstanding. The government is still going to repay the bond money to the central bank, at which point the face value and coupons of the bond will be destroyed.</p>
<p>QE is a transaction between central banks and private banks. The private bank is going to receive some money in the future; the central bank prints money now, for the private bank, but the private bank gives up the right to receive the money in the future.</p>
<p>Private banks can make similar transactions (but without printing money). Citibank can buy a government bond from Wells Fargo, and we don't say &quot;Citibank is paying the government's debt.&quot;</p>
<p>This is a temporary increase in the money supply, unless the bond issuer defaults, in which case the money is not destroyed and the increase becomes permanent. To keep the money supply raised, the central bank must continue performing QE.</p>

CC BY-SA 4.0
2022-07-21T16:12:07.527Z
Wrong choice of word. It is not that "the state prints cash to pay the private sector's debts". A government bond held by the private sector is an asset.
H2ONaCl
CC BY-SA 4.0
2022-07-20T15:38:14.670Z
2022-07-20T15:38:14.670Z
Criticize SE actions means ban
<p>Altough you are correct saying that the state "own" central banks, they should be independent from their government. This gives freedom to monetary policymakers from direct political or governmental influence in the conduct of policy.</p>

<p>Given that, I would say that your interpretation is a bit exaggerated and maybe biased somehow.</p>

<p>Quantitative easing (QE) is a monetary policy in which a central bank purchases g<strong>overnment securities or other securities from the market</strong> in order to <strong>increase the money supply</strong>. This is made with newly created bank reserves, but doesn't mean that new currency (bills and coins) has been printed. <strong>In theory</strong>, with more liquidity, the domestic demand would increase and eventually promote economic growth. Then, the excess of liquidity is absorbed by the growth and inflation would remain low.</p>

<p>The problem is if the economic growth don't happen, there will be inflation.</p>

<p>Using a more informal language, it's correct to say that the government is creating money in the present, hoping that this fresh money will increase economic growth in the future. </p>

CC BY-SA 4.0
2020-03-06T15:04:05.807Z
Yeah here I am more or less considering "state" "government" "public" "central bank" as the same thing. Its just that in practice I don't really see what independence means. The central bank director is still a citizen of its country and wants to do good to its country. Even if CB director doesn't have a manager, CB director and head of state, have the same will to make their country a stable and strong economy.
jam
CC BY-SA 4.0
2020-03-06T15:40:42.407Z
So the net effect is: more money *is* printed (digital reserves count as printed, for this purpose, since they are interchangeable with physical cash) but it doesn't pay off government debt, it just increases demand for the debt.
Criticize SE actions means ban
CC BY-SA 4.0
2020-04-05T15:51:09.253Z
It increases the monetary base, but that need not necessarily translate into commesurate increase in money aggregates. During crises that link is weakened. Also the velocity of money is decreasing too. Those two (low velocity and weakened link) are deflationary forces.
Al Guy
CC BY-SA 4.0
2020-03-06T14:48:37.013Z
2020-03-06T14:48:37.013Z
Croves
<p>I find that most sources describe quantitative easing in an overly complicated way that obscures what it basically means.</p>

<p>As far as I understand a central bank is a public entity  owned by a state, so I don't see much point in distinguishing a state entity from a central bank entity. </p>

<p>Therefore, I tend to find that the traditional descriptions like  "the central banks buys government bonds from private banks in order to inject money in the economy" are ridiculously  convoluted and funny.</p>

<p>As far as I understand, if I have a government bond, it is a promise that the state will pay me back some money at some point. So when I'm hearing "the central bank buys government bonds", all I'm hearing is actually "the government is printing cash from nothing to pay me right now, and destroy its debt".</p>

<p>Is my interpretation correct? Why isn't my interpretation the standard official intuitive explanation of quantitative easing? Is it just for newspapers and bankers to sound "serious"?</p>

CC BY-SA 4.0
2020-04-05T20:19:14.390Z
Basically yes because these days central bank profits are given back to the treasury.https://positivemoney.org/how-money-works/banking-101-video-course/
Frank
CC BY-SA 4.0
2022-07-19T16:14:48.143Z
I agree with the OP.  QE simply replaces a bond obligation by a currency obligation, when you consider central bank and Treasury on a consolidated basis.
dm63
CC BY-SA 4.0
2022-07-20T18:21:10.287Z
Answer, no. It is genuinely complicated and you can't really understand it without first knowing how the monetary system works http://mickanomics.blogspot.com/2021/03/what-people-still-get-wrong-about-qe.html
Mick
<central-banking><quantitative-easing>
Can quantative easing be summarized as "The state prints cash to pay its debt to private sector"?
jam
# Can quantative easing be summarized as "The state prints cash to pay its debt to private sector"?

(Asked by: username_0 on 2020-03-06)

I find that most sources describe quantitative easing in an overly complicated way that obscures what it basically means.

As far as I understand a central bank is a public entity owned by a state, so I don't see much point in distinguishing a state entity from a central bank entity.

Therefore, I tend to find that the traditional descriptions like "the central banks buys government bonds from private banks in order to inject money in the economy" are ridiculously convoluted and funny.

As far as I understand, if I have a government bond, it is a promise that the state will pay me back some money at some point. So when I'm hearing "the central bank buys government bonds", all I'm hearing is actually "the government is printing cash from nothing to pay me right now, and destroy its debt".

Is my interpretation correct? Why isn't my interpretation the standard official intuitive explanation of quantitative easing? Is it just for newspapers and bankers to sound "serious"?

**Tags:** central-banking, quantitative-easing

> **Comments:**
> **username_1**: Basically yes because these days central bank profits are given back to the treasury.https://positivemoney.org/how-money-works/banking-101-video-course/  
> **username_2**: I agree with the OP.  QE simply replaces a bond obligation by a currency obligation, when you consider central bank and Treasury on a consolidated basis.  
> **username_3**: Answer, no. It is genuinely complicated and you can't really understand it without first knowing how the monetary system works http://mickanomics.blogspot.com/2021/03/what-people-still-get-wrong-about-qe.html  

---

## 3 answers

### Answer by username_4 on 2022-07-19. Score: 2

> the government is printing cash from nothing to pay me right now, and destroy its debt

That's not the whole story.

Any money coming out of the central bank is newly created money, and any money going in is existing money being destroyed.

When the central bank buys government bonds, the bonds don't disappear. They still collect coupon payments. Eventually, all the money collected on those bonds will be destroyed.

If we consider the central bank and the state the same entity, the government is printing cash from nothing to pay me right now, and destroy its debt **destroy the money it owes** over the time period of it's debt.


---

### Answer by username_5 on 2022-07-20. Score: 0

It is more like "the state prints cash to pay the private sector's debts" - which the private sector was planning to pay in the future, but now it can pay immediately.

Assuming that you subscribe to the idea that central banks are independent from governments, you should notice that the government bond is still outstanding. The government is still going to repay the bond money to the central bank, at which point the face value and coupons of the bond will be destroyed.

QE is a transaction between central banks and private banks. The private bank is going to receive some money in the future; the central bank prints money now, for the private bank, but the private bank gives up the right to receive the money in the future.

Private banks can make similar transactions (but without printing money). Citibank can buy a government bond from Wells Fargo, and we don't say "Citibank is paying the government's debt."

This is a temporary increase in the money supply, unless the bond issuer defaults, in which case the money is not destroyed and the increase becomes permanent. To keep the money supply raised, the central bank must continue performing QE.

> **Comments:**
> **username_6**: Wrong choice of word. It is not that "the state prints cash to pay the private sector's debts". A government bond held by the private sector is an asset.  

---

### Answer by username_7 on 2020-03-06. Score: -1

Altough you are correct saying that the state "own" central banks, they should be independent from their government. This gives freedom to monetary policymakers from direct political or governmental influence in the conduct of policy.

Given that, I would say that your interpretation is a bit exaggerated and maybe biased somehow.

Quantitative easing (QE) is a monetary policy in which a central bank purchases g**overnment securities or other securities from the market** in order to **increase the money supply**. This is made with newly created bank reserves, but doesn't mean that new currency (bills and coins) has been printed. **In theory**, with more liquidity, the domestic demand would increase and eventually promote economic growth. Then, the excess of liquidity is absorbed by the growth and inflation would remain low.

The problem is if the economic growth don't happen, there will be inflation.

Using a more informal language, it's correct to say that the government is creating money in the present, hoping that this fresh money will increase economic growth in the future.

> **Comments:**
> **username_0**: Yeah here I am more or less considering "state" "government" "public" "central bank" as the same thing. Its just that in practice I don't really see what independence means. The central bank director is still a citizen of its country and wants to do good to its country. Even if CB director doesn't have a manager, CB director and head of state, have the same will to make their country a stable and strong economy.  
> **username_5**: So the net effect is: more money *is* printed (digital reserves count as printed, for this purpose, since they are interchangeable with physical cash) but it doesn't pay off government debt, it just increases demand for the debt.  
> **username_8**: It increases the monetary base, but that need not necessarily translate into commesurate increase in money aggregates. During crises that link is weakened. Also the velocity of money is decreasing too. Those two (low velocity and weakened link) are deflationary forces.  

---

