Do you remember how the Reserve Bank printed a huge amount of money in the pandemic?
Have you been wondering if it’s responsible for the inflation we’re seeing?
The RBA says it’s a complicated question to answer, and it’s trying to encourage people to think more deeply about money itself.
Here’s what that means.
The bond-buying program
In late 2020, the RBA began buying hundreds of billions of dollars worth of government bonds.
It was an emergency stimulus measure.
The program ran from November 2020 to February 2022, and saw the RBA buy $281 billion of federal, state and territory government bonds.
Last week, the RBA published a review of the program which found it broadly helped to support economic activity during the crisis.
However, there were a few passages near the bottom of the review that were very interesting.
Last week, the RBA published a review of the program which found it broadly helped to support economic activity during the crisis.
However, there were a few passages near the bottom of the review that were very interesting.
They had to do with money printing.
See, the RBA’s bond buying was an exercise of “money printing” because the bank was creating money to buy the bonds.
To be more precise, it was waiting for Treasury to sell the government bonds to authorised investors (ie institutional banks), then it would buy the bonds from those banks.
And when it bought the bonds, it would pay for them by simply electronically crediting the accounts that those banks had at the RBA.
For example, let’s say the RBA bought $100 million worth of bonds from a particular bank.
It would say to that bank, ‘Here you go, we’ve gone to the computer and added an extra $100 million to your exchange settlement account. Thanks for the bonds.”
Don’t believe me?
Watch the clip below of Ben Bernanke, a former chairman of the US Federal Reserve, explaining how the process worked during the global financial crisis.
Source: ABC News