What is quantitative easing?
Quantitative easing Quantitative Easing (QE) is an unconventional monetary policy instrument used by central banks in situations where interest rates are already very low and there is no room for further lowering. This measure became particularly famous during the global financial crisis of 2008, when the usual tools, such as interest rate cuts, were no longer sufficient to stimulate economic growth. The main purpose of quantitative easing is to increase the amount of money in circulation, stimulate lending and make borrowing more favourable for citizens and businesses. This is achieved by the central bank buying government bonds or other securities on the market, thereby directly injecting fresh liquidity into the financial system.
Source: cointelegraph
How does quantitative easing work?
To understand how quantitative easing works in practice, it is necessary to look at its mechanism step by step. This measure does not work through a single action, but through a series of interrelated processes that begin with the central bank and eventually affect daily economic activity. First, the central bank buys government bonds or other securities from banks and financial institutions. This introduces additional liquidity into the financial system, i.e. the amount of money available increases. When banks have more cash at their disposal, they tend to lower interest rates, which makes loans cheaper. As a result, companies invest more easily in new projects, and consumers more easily decide to spend and borrow, which stimulates the growth of the economy.
Source: cointelegraph
Quantitative easing throughout history
Quantitative easing is not just a theoretical tool – it has been used by the world’s largest central banks in moments of serious economic crises. In the United States, for example, the Federal Reserve conducted three major waves of QE between 2008 and 2014, following the collapse of the housing market and recession. They bought trillions of dollars in government bonds and mortgage-linked securities, which lowered interest rates, boosted lending and strengthened the stock market. During the COVID-19 pandemic, the Fed reactivated QE, buying up to $120 billion worth of securities per month, to keep borrowing costs low and support households and businesses.
In Japan, where the economy has long been hit by low inflation and slow growth, the Bank of Japan introduced quantitative easing as early as the early 2000s and later reactivated it in 2013. In addition to government bonds, they also bought stocks and real estate investment funds, trying to stimulate growth and prevent deflation.
In the eurozone, the European Central Bank (ECB) launched QE in 2015, following a debt crisis that hit Greece, Italy and Spain hard. The ECB has been buying government bonds of member states to lower borrowing costs, help weaker economies and prevent prices from falling.
Source: cointelegraph
How Does Quantitative Easing Affect Crypto?
Quantitative easing not only shapes traditional financial markets but also has a strong impact on the cryptocurrency market. When central banks inject additional liquidity into the economy, some of that money ends up in alternative investments like Bitcoin and altcoins, fueling their price growth. A larger amount of available capital often leads to an increase in the value of various assets, including cryptocurrencies, as investors have more funds to invest.
In addition, an increase in the money supply can weaken the value of fiat currencies, so some investors switch to cryptocurrencies in search of protection against inflation or devaluation. Bitcoin is often seen as a digital version of gold, or a “safe harbor” for preserving value. For example, during the COVID-19 pandemic in 2020, while the US Fed was pursuing aggressive QE, the price of Bitcoin rose from less than $5,000 in March to more than $60,000 by the end of 2021, fueled by inflation fears and record-low interest rates.
However, when QE ends or central banks start raising interest rates, the situation turns. Reduced liquidity and more expensive borrowing tend to reduce investors’ propensity for riskier assets, including crypto. This was clearly seen in 2022 when the Fed began a quantitative tightening (QT) policy to combat inflation, and the price of Bitcoin fell from around $47,000 in March to below $17,000 by December.
Source: cointelegraph
Quantitative easing (QE) vs. quantitative tightening (QT)
Quantitative easing (QE) and quantitative tightening (QT) are two opposing monetary policy measures that central banks use to manage economic cycles. QE implies the expansion of the money supply through the purchase of government bonds and other securities, which brings additional liquidity to the economy with the aim of stimulating growth, lowering interest rates and stimulating lending. By contrast, QT means shrinking a central bank’s balance sheet – by selling assets or allowing bonds to mature without reinvestment – thereby reducing the amount of money in circulation. The main goal of QT is to curb an overheated economy and curb inflation that is too high.
The key difference between these two policies is reflected in their impact on the central bank’s balance sheet: QE is broader and increases, while QT has a contractionary effect and decreases it. In practice, QE most often raises asset prices and lowers interest rates, while QT has the opposite effect – it can lower asset values and increase borrowing costs. Both policies have a strong impact on inflation and market stability.
It is also important to emphasize the difference between QE and the so-called tapering . QE stands for active asset purchases by the central bank, while tapering means a gradual slowdown in these purchases. Thus, tapering is not the same as QT, but is considered a transitional phase that marks the beginning of the end of the quantitative easing program.
Source: cointelegraph
Fed policy in September 2025
By September 2025, the US Federal Reserve is in a transitional phase of monetary policy, balancing between persistent inflation and slowing economic growth. The key interest rate is still in the range of 4.25% to 4.50%, but the market expects the first cut of 0.25 percentage points as early as September, with the possibility of further cuts by the end of the year. The Fed continues to implement mild quantitative tightening (QT) through a gradual reduction of the balance sheet, allowing some Treasury and mortgage securities to mature without reinvesting. While inflation is still present, weaker employment data is prompting the Fed to ease its restrictive stance. This shapes monetary policy that tries to keep prices under control and support the economy at the same time, but without sudden and risky moves.
Source: cointelegraph
Advantages and disadvantages of quantitative easing
Quantitative easing is a powerful tool that can stimulate economic growth and stabilise the financial system, but its use also carries certain risks. Among the main advantages, the increase in the money supply in circulation stands out, which stimulates lending, investment and consumption. By buying government bonds, the central bank lowers interest rates further, making borrowing more favorable for businesses and consumers. Also, additional liquidity can prevent deflation and maintain price stability in times of economic shocks.
On the other hand, excessive use of QE can lead to currency depreciation and accelerate inflation, which in the long run erodes the purchasing power of citizens. Readily available funds can inflate the prices of assets such as stocks, bonds, or real estate, creating potential bubbles in the market. In addition, such a policy increases the indebtedness of the state and makes it more difficult for the central bank to control inflation and interest rates in the future. Therefore, quantitative easing can be seen as a double-edged sword — a powerful mechanism for stabilizing an economy in crisis, but also a source of long-term challenges if used excessively or for too long.
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