The US Federal Reserve, the European Central Bank (ECB) and the Bank of Japan have all applied additional easing measures to their monetary policy management in the past couple of months. The Bank of England got there first with additional easing announced earlier in the year. The Swiss National Bank is printing money on a scale that is almost Zimbabwean in its volume. Are these salvos in a war to devalue currencies _ a war that must ultimately fail (for you have to have one strong currency to devalue against)? Or are central banks trying to devalue their currencies against commodities such as oil?
A number of commentators see something hostile in all of this monetary easing. It has been described as protectionist, and complaints have been levelled at the Fed in particular. Chairman Ben Bernanke is cast as someone recklessly throwing dollar bills from the roof of the Fed building onto the heads of passersby. Printing of dollars tends to engineer a special sort of concern, as the dollar remains the pre-eminent reserve currency in foreign exchange reserves, and of course because commodities tend to be priced in dollars.
However, this obsession with money supply is to miss the point. Money supply is only half the equation. The critical issue at the moment is not whether central banks are printing more money but whether there is any demand for the money they are printing.
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