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QE

One of the main tools central banks have to control growth – not too intense that could lead to inflation getting out of control, and not too little that there is stagnation – is raising or lowering interest rates. Lower interest rates encourage people or companies to spend money, rather than save.

When interest rates are almost at zero, central banks need to adopt different measures - such as pumping money directly into the economy.

This process is known as quantitative easing or QE.

In order to carry out QE, central banks create money by buying securities, such as government bonds, from banks, with electronic cash that did not exist before. The new money swells the size of bank reserves in the economy by the quantity of assets purchased - hence "quantitative" easing. Like lowering interest rates, QE is supposed to stimulate the economy by encouraging banks to make more loans. The idea is that banks take the new money and buy assets to replace the ones they have sold to the central bank. That raises stock prices and lowers interest rates, which in turn boosts investment.

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