Quantitative Easing Definition
The economy depends on various factor and one of it is the availability of funds in the market, its circulation or rather the demand and supply of the money. The Monetary Policy of the Federal government impacts the demand and supply of the currency in the market. One of the unconventional step to increase the supply of currency is to buy bonds or other securities by the central banks. This results more money getting pumped in the market or brings more liquidity will be created. This activity is called Quantitative Easing(QE). To the contrary where the liquidity in the market is found to be more than the requirement or the norms it is reduced by way of selling of instruments. When the instruments are sold the currency comes back to the treasury.
How it started?
The history of QE goes back to the year 2000 when Japan introduced it where the monetary policy was found as not effective to tackle the situation. Central Banks purchase long term financial assets from the private institutions of the other banks. Post 2007 the countries like US, UK etc also used this approach and it helped to increase their balance sheets.
US has announced three rounds of QE till the year 2012 as step to fight the crisis of Liquidity and also balancing the Interest rates in the market.