What is quantitative easing

Last week ANC secretary-general Ace Magashule read a statement on the outcomes of the National Executive Committee lekgotla to the media. There have been reports claiming that Magashule amended the statement to include yet another attack on the South African Reserve Bank however he denies this.

Not to say that I’m in support of the expansion of the SARB mandate (I’m not). But if he did amend the report, I wouldn’t blame him because there was nothing new in it. It was the same old creating jobs, improving the lives of the poor and fighting corruption song.

Magashule also went on to say that “Quantity easing” measures should be explored in order to address intergovernmental debts so that funds can be made available for developmental purposes.

I do not know whether this was also an addition made by him but I can believe it because “Quantitative” is misspelled and surely a whole executive committee could not have failed to do a bit of research before coming to that conclusion.

So what is quantitative easing? This is when a central bank creates money that is used to buy government bonds from banks and other big private investment companies. The bonds are then recorded in the banks’ balance sheet as assets.

This is done in order to inject money into the economy (through the banks). It is a risky practice that could lead to hyperinflation and it is only done when other options, such as cutting interest rates, have been exhausted.

It has only been done by the biggest central banks including the US federal bank and the European central bank is currently preparing to cut interest rates and embark on a new round of quantitative easing.

Our GDP shrank by 3.2% in the first quarter of this year, the biggest decline in the past 10 years. There are fears that we might fall into a recession, therefore what the SARB can do right now to boost the economy would be to lower interest rates.

Implementing quantitative easing to address intergovernmental debts would also not help boost the economy, it would only make the government richer.

So here we are unemployed, underemployed, all taxed out, barely making ends meet, complaining about corruption and wasteful expenditure yet the government’s solution to this is printing money for debt monetization. I am baffled.

You may also like

Leave a Reply

Your email address will not be published.