QUANTATIVE EASING - THE REAL COST
The theory is that asset purchases known as “Quantative Easing” will boost commercial banks’ balance sheets, increase liquidity, and encourage more lending, which will in turn boost spending, growth, and create jobs. At the same time, the United States, Britain, Japan, and the European Central Bank are implementing a loose monetary policy of ultralow interest rates.
THE EFFECT OF QUANTATIVE EASING
This results in an outflow of hot money, chasing better returns around the world, which causes asset bubbles in the destination economies and distorts exchange rates, making currencies such as the Malaysian ringgit and the Korean won more expensive and thus affecting exports from those countries. “The disagreements on this were more pronounced,” said a former central banker, who wished to remain anonymous, of the governors’ meetings in late 2012. “Most of the developing countries were saying, ‘We don’t see that low interest rates are adding to your economic growth and at the same time it causes us problems because of the capital inflows. Our exchange rates go up and we are having real estate bubbles.’” The central bankers remain polite. “Everyone is very careful because you cannot tell other countries what to do. But the developing countries are saying, look, this is what these policies are doing to us. They are causing us problems.”