During the pandemic central banks had no choice but to buy up government bonds. There were just so many of them being issued. That’s why the UK’s quantitative easing program totalled more than £900 billion during 2020-1. Recently, the bank – like other central banks the world over – are trying to unwind these huge additions to their balance sheet. Recently the Bank of England slowed down the pace at which they sold-off these assets. Why? In part because this process of ‘quantitative tightening’ can reduce the amount of money in circulation. That could slow what little economic growth we have right now. But, Steve says, if these bonds are bought up by banks, it’ll simply mean they replace reserves with zero impact on the economy, except for the interest the banks will earn from those holdings. All this raises the question, why sell now? Or ever? And how much does QE and QT sit alongside or in contrast with government fiscal policy? Don’t they need to be coordinated and, if that’s the case, is there any case for an independent central bank?

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