European Central Bank Signals End of Cheap Money Era is Coming

Link: https://nyti.ms/2xcC1XA

Date: 7th September, 2017

Media: The New York Times

What happened?

The European Central Bank has created a program known as “quantitative easing” to eliminate the so called “easy money policies”. These policies were created in 2008 to prevent the euro from self-destructing after the global financial meltdown. But the program also has secondary effects, including the increase of the goods’ prices in Germany (fear of bubble).

Whom and where it affects?

It affects the all Eurozone and consequently the international markets. In particular, this year, the dollar has declined more than 13 percent against the euro by tensions with North Korea and Washington.

What sort of public or private institutions are involved?

The Federal Reserve in the United States (Fed) and the European Central Bank (ECB)

Why is it important for Banking and Finance?

This article is important for Banking and Finance because it is directly linked to the transmission of monetary policy to control inflation and economic growth.

What do you think will be the consequences in the foreseeable future?

The recent volatility in the exchange rate represents a source of uncertainty which requires monitoring. Due this, the central bank will be keeping a close eye on the euro`s growing strength compared to the dollar.

We believe that when the euro rises against the dollar, European exports will become more expensive, not only in the United States but also in other countries, such as China whose currencies are linked to the dollar. Therefore, it could hurt growth and prolong the need for central bank stimulus.

It is expected that stop printing money would control the governments’ debt and help corporations’ investment.

Key words: Monetary policy, Interest rates, Bubble, Cheap money, Inflation