INTHEBLACK April 2022 - Flipbook - Page 27
Left: The Bank of
England, the UK’s
central bank and
bank in the world.
STORY GARY ANDERS
AS T H E W O R L D C O N T I N U E S T O G R A P P L E W I T H T H E E C O N O M I C E F F E C T S
O F T H E C O V I D - 19 PA N D E M I C , C E N T R A L B A N K S A R E C O N C E N T R AT I N G
T H E I R E F F O R T S O N F I N D I N G T H E R I G H T B A L A N C E O F P R I O R I T I E S AS
T H E Y S H I F T I N T O A N E W M O N E TA RY P O L I C Y D I M E N S I O N .
nder so-called normal economic
conditions, most central banks operate
in the conventional monetary policy
dimension. In other words, they largely use
changes to official interest rates as their primary
lever to manage domestic economic conditions
and meet their policy objectives.
Changes in rates affect the cost of borrowing,
savings returns, the exchange rate, asset prices
and consumer spending, which, in turn, all
impact economic activity.
To ease the pressure on households and
businesses caused by COVID-19, central banks
moved swiftly during 2020 to cut their official
interest rates down to record low levels.
However, using conventional monetary
policy was never going to be enough on its
own. Central banks needed to take much more
drastic action to avert economic disaster. Most
have turned to what is known in economic
terminology as “quantitative easing” (QE).
ON THE HORIZON
Faced with the unprecedented events brought
on by the escalating pandemic, including
massive job losses stemming from forced
business closures, governments around the
world moved into QE mode.
This included financial aid and other
economic stimulus programs on a massive
scale, to increase money supply back into their
economies. In order to fund these vast fiscal
programs, central banks globally began buying
trillions of dollars of risk-free treasury bonds
issued by their own governments.
These central bank bond purchase programs
are still continuing in many countries, including
Australia, at a rate of tens of billions of dollars
a month, although they are gradually being
In the meantime, new economic threats are
emerging as the global economic recovery
gains momentum. These are most notably in
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