What is QE2?
QE stands for quantitative easing and the 2 represents the second time or second round of this process. In this context, QE2 is the second time in which a particular central bank has offered or “done” quantitative easing to help stimulate the economy of a particular country.
Quantitative easing is a process or policy adopted by central banks in many countries of the world in times when the economy needs some boosting. In this way, governments aim to stimulate the economy by using its own money to start the whole process of expanding the money supply. The basic concept of quantitative easing involves government spending on bonds and securities for example. These bonds and securities are converted into circulation money to stimulate the economy. As the sellers of bonds and securities earn their money from the government, they will in turn contribute to expanding the money supply by depositing their checks to the banks. The banks will then have extra money at their disposal as possible loans for its customers. In this way, people and businesses will have access to more money, which they will spend for business expansions, purchasing goods, and availing of services. This particular process will then stimulate the money-circulation cycle which is aimed at boosting the money supply of a particular country. It is through this process of quantitative easing that governments and/or central banks hope that the money they “injected” into its own economy will in fact result to an increase in money supply.
Based on analysts’ findings, when a particular government or central bank implemented quantitative easing, it would almost always mean a weaker money value and higher inflation rates. Interest rates in banks will also be low along with mortgage rates. And as with other policies and procedures, quantitative easing may not really produce its desired result. Governments may be made to decide on a second round, dubbed QE2, to re-stimulate the economy.