The European Central Bank voted unanimously last month to initiate a government bond buying program to create liquidity in the European euro currency market. ECB Approves Bond Buying This monetary policy also known as “quantitative easing” is designed to increase the amount of cash in the monetary systems. Reports from the January E.C.B. meetings indicate that the liquidity goal is about 50 Billion Euros per month. The European Central Bank’s hope is that the influx of added liquidity will help to spur economic growth and development throughout Europe.
Germany has expressed grave concerns regarding the enacted monetary policy with the concern that this “easing” process, which is akin to simply printing money, can not be sustained for a long period of time and has the potential of inducing inflation or worse, totally devaluing the european currency. Such an event would have a ripple effect for the rest of the world’s currencies.
The move by the European Central Bank is similar to recent quantitative easing policies that have been engaged by the U.S. Federal Reserve over the past several years. The U.S. has actually gone through three distinct easing events. Zeca Oliveira has found that the results are mixed. Stabilization of the U.S. dollar was maintained and the stock market has remained relatively sound. However, many are unsure how long these effects will last or what will be the result when other global economies initiate their own quantitative easing monetary polices.