Monetary Finance Explained | the Latest Addition to the Monetary Policy Toolkit

The United Kingdom turned to monetary finance for its Coronacrisis spending. This is different from the standard Quantitative Easing approach. So, what exactly is monetary finance? Why has the UK started using it? And will it lead to inflation or even hyperinflation?

△ Want to know more about central banking? Check out the playlist: https://www.youtube.com/playlist?list=PLGbVoSdwvesCIGv-sN7OiQLryj2f4bAGE
△ Check out how I use these principles to study country economies: https://www.youtube.com/playlist?list=PLGbVoSdwvesDNHLHmkZzvW2vuCfllJhpA

For a written version of this story check out: http://www.moneymacro.rocks/2020-04-12-monetary-finance/

Narrated and produced by Dr. Joeri Schasfoort (University of Cape Town)
https://twitter.com/joerischasfoort
https://www.linkedin.com/in/joeri-schasfoort/

If this topic has peaked your interest and you would like to know more about it. I've suggested some excellent readings below:

* Between Debt and the Devil by Adair Turner, great book on money and debt by one of the most prominent proponents of monetary finance.
* Monetary Finance is here by Adair Turner (The Daily Maverick: https://www.dailymaverick.co.za/opinionista/2020-04-21-monetary-finance-is-here/)
* Is monetary finance inflationary? by Josh Ryan-Collins (Levy Economics Institute Working Paper: http://www.levyinstitute.org/pubs/wp_848.pdf)

Extended description:

Monetary finance is the latest addition to the monetary policy toolkit of central banks. It is closely related to money printing and quantitative easing, but not quite the same. Theoretically monetary financing is much more efficient than letting the government borrow via the bond market to finance its fiscal policy spending. So why not do it all the time? Well this brings us to the problem with monetary financing. And that is not about doing it per se but more about is about doing it too much.

The problem is that it is too easy. Hence, it might tempt governments to do this too much. So much so that excess money creation will increase demand for goods and services while supply cannot keep up. That is when price start to skyrocket. This is why hyperinflation happened in Zimbabwe and Venezuela when the government started printing money to finance government expenditures.

However, central bankers have told us that this is just a temporary measure and they hope that investors believe them.

But, do we believe them?

Видео Monetary Finance Explained | the Latest Addition to the Monetary Policy Toolkit канала Money & Macro