09 Apr 2009
Introduced to the UK last month by the Bank of England, quantitative easing injects more money into the banking system, boosting the economy by making credit more easily available. Although critics say it's effectively 'printing money', banknotes are not actually printed; the Bank simply transfers funds into the system electronically.
By adding to reserves, governments hope that families and businesses will be lent money - and get the economy going again, where successive rounds of lowering the interest rates have failed. The US began quantitative easing when interest rates fell to between 0% and 0.25%, while the last major use of the strategy was 10 years ago in Japan.
Licence to print?
We've all seen the catastrophic results of Zimbabwe’s economic mismanagement - where 'silly money' is doing the rounds. But there's a key difference. Buying bonds directly from the banks that will start lending more freely means the government's own deficit isn't artificially reduced. And the Bank of England is sticking to its line that the measure is strictly temporary.