ASX to slide; Westpac defers dividend

The COVID-19 pandemic has been one long tale of the unexpected. But even among its many odd chapters, it was surprising to see a Bank of England official feel the need to go public recently and assure us that Britain really, really isn’t Zimbabwe.

Gertjan Vlieghe is an external member of the BoE’s monetary policy committee, which calls the shots on interest rates. He tends to mount the speaker’s rostrum about three times a year, and does a nice line in big-picture thinking.

His April 23 speech got a bit of media attention, because on page 1 he described the coming British economic contraction as “faster and deeper than anything we have seen in the past century, or possibly several centuries”. Scary stuff.

The Bank of England says its independence is the tripwire against bad monetary financing. Getty

But the real point of Vlieghe’s public sally was to push back against the many dark mutterings that elements of the Bank of England’s quantitative easing program amount to “monetary financing”.

Monetary financing is essentially when a central bank manufactures money to buy government bonds directly, so that governments can spend without fetters. And my how governments are spending just now (and rightly so).

If the central bank never sells those bonds to private investors, they stay safely tucked into the central bank’s balance sheet as a form of government funding rather than showing up as public debt. And they won’t later be deployed (ie sold) to help steer interest rates and keep inflation in check.

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