INTRODUCTION Quantitative easing involves the central banks buying bonds for other bank assets in exchange for

deposits made by the central banks in the commercial banking system. It is done to create reserves that can be loaned to provide a positive rate of return. So the central bank provide exchanges non- or low interest bearing assets for much results and longer term assets. So quantitative easing implies accounting adjustment in the various accounts to reflect the assets. The benefit of quantitative easing adds liquidity to a system where lending by commercial banks stop due to shortage of reserves in the banking system. It is the method which boosts the supply of the money. The main aim is to provide good flow of money in an economy when the cutting of interest’s rate is not working. The main beneficiaries of QE have been the banks and financial bodies who have seen a rise in the price of the bonds. Quantitative easing helps banks to stabilize price and reduce the level of negative equity. The increased money supply and lower interest rates have played some role which stimulates higher economic growth and prevents deflation. As quantitative easing is the process of buying good quality debt and assets from banks in return to cash to bolster reserves. It helps to improve the quality of assets on a bank’s balance sheet by taking the control of poor quality of riskier. With quantitative easing, the Central Banks were increasing monetary base in a controlled way which only led to a moderate increase in lending because of the state of the economy. Does quantitative easing work? The mainstream belief is that quantitative easing will stimulate the economy sufficiently to put a brake on the downward spiral of lost production and the increasing unemployment. It is based on the erroneous belief that the banks need reserves before they can lend and that quantititative easing provides those reserves. That is a major misrepresentation of the way the banking system actually operates. But the mainstream position asserts (wrongly) that banks only lend if they have prior reserves. The illusion is that a bank is an institution that accepts deposits to build up reserves and then on-lends them at a margin to make money. The conceptualization suggests that if it doesn’t have adequate reserves then it cannot lend. So the presupposition is that by adding to bank reserves, quantitative easing will help lending.

But this is a completely incorrect depiction of how banks operate. The major formal constraints on bank lending (other than a stream of credit worthy customers) are expressed in the capital adequacy requirements set by the Bank of International Settlements (BIS) which is the central bank to the central bankers. Bank lending is not “reserve constrained”. ultimately. Loans create deposits which generate reserves. The reason that the commercial banks are currently not lending much is because they are not convinced there is credit worthy customers on their doorstep. Bank lending is never constrained by lack of reserves. Recession and deflation is greatly threatening the present conditions of the global economy and is one of the most feasible solutions that the central banks like the Federal Reserve’s can easily implement. These requirements manifest in the lending rates that the banks charge customers. they will borrow from the central bank through the so-called discount window. Quantitative easing can be simply defined as flooding of monetary supply by the central banks . In the current climate the assessment of what is credit worthy has become very strict compared to the lax days as the top of the boom approached. QUANTITATIVE EASING IN CONTEXT OF REVIVING ECONOMY IN DEEP RECESSION Quantitative easing is one of the concepts in economics that is gradually becoming the most important monetary policy tool in resolving the difficulties in today’s economy. Banks lend to any credit worthy customer they can find and then worry about their reserve positions afterwards. They are reluctant to use the latter facility because it carries a penalty (higher interest cost). If they are short of reserves (their reserve accounts have to be in positive balance each day and in some countries central banks require certain ratios to be maintained) then they borrow from each other in the interbank market or. The point is that building bank reserves will not increase the bank’s capacity to lend. They relate to asset quality and required capital that the banks must hold.

As long as these large cash reserves is properly distributed and put into good use. . though highly criticized and doubted. a significant delay on deflation will occur. the advantages and disadvantages that people can derive by its implementation are yet to be experienced. These cash reserves will be distributed to the sectors that need it the most and are expected to resolve the majority of the difficulties. Exports and international trading can be further strengthened by the huge amounts of cash reserves delivered by Quantitative easing that can be used to purchase and trade off goods in the international market. Quantitative easing resolves the financial instability of the economy by huge quantities of cash. Quantitative easing is one of the fastest rising controversies in the global economy. By utilizing this monetary policy tool. but still. a decrease in the long-term interest rates. Quantitative easing. yields will be moved at the farther end of the yield curve.resulting in the immediate increase in the market’s cash reserves. Quantitative easing is carried out by central banks by cutting short-term interests to zero percent and indicating the length of its validity and by purchasing long-term securities like Treasuries and corporate bonds. thus. the economy can reap great benefits. CONCLUSION Quantitative easin helps in increasing the flow of money in an economy thereby. This monetary policy has been the center of many questions and doubts coming from people who are either investing or relying on the strength of the economy.increasing the liquidity. Once these interest rates are kept minimal for an extended period of time. has many benefits once successfully implemented. This monetary policy is easy to understand.

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